Stress is intensifying in the US credit market as the US Business Development Corporation Index (MVBDC) sinks to multi-year lows.
Analysts have warned that increased pressure in private credit markets could trigger a broader market selloff and raise concerns about risk assets across stocks and cryptocurrencies. Nevertheless, experts are making the case for “digital credit” using MicroStrategy’s perpetual stock STRC as a case study.
Private credit sector under intense pressure
In a recent post on X (formerly Twitter), Kobeissi Letter noted that the index had fallen to 424 points. This would be the lowest level since the bottom of the bear market in 2022. It has fallen 150 points over the past year, representing a 25% decline.
“The index tracks publicly traded companies that lend to small and distressed U.S. businesses, providing individual investors with access to private credit markets,” the post said.
The Kobeisi letter added that this economic downturn is unfolding in parallel with several important developments in private credit markets. Last week, Blue Owl Capital permanently suspended investor redemptions in its retail private credit fund, Blue Owl Capital Corp II (OBDC II).
The announcement was a huge blow to financial markets, with Blue Owl shares plummeting 10% the next day and a sell-off across private credit stocks.
The post added that despite revenue growth, Blue Owl’s stock price has fallen nearly 60% over the past 13 months. Meanwhile, other industry giants Ares, Apollo, KKR, Blackstone, and TPG are down 15% to 40% since the beginning of the year.
This comes as concerns about artificial intelligence spill over into private credit markets. UBS Group AG warned in early February that private credit default rates could rise to 13% under what it described as an “aggressive” AI-driven disruption scenario.
The bank’s strategists, including Sachin Ganesh, argued that the asset class appears to be more vulnerable to AI-related risks than leveraged loans or high-yield bonds. UBS estimates that around 35% of the $1.7 trillion private credit market is at risk of AI disruption.
Nevertheless, recent developments have worsened the outlook. Analysts revised their worst-case scenario this week, saying the private credit default rate could rise to 15%, up 2 points from their early February forecast.
Bitcoin and virtual currency markets exposed to credit epidemic
Bitcoin prices are linked to US software stocks. This move means that stress in private credit, particularly related to software lending, could spill over into digital asset markets.
Furthermore, experts suggest that stress in the private credit market could cause an even bigger market decline.
Cryptoassets, including Bitcoin, tend to perform in environments characterized by sufficient liquidity and strong risk tolerance among investors. A deterioration in credit conditions may affect this. As capital becomes more defensible and funding costs rise, investors may reduce their exposure to volatile assets, including digital tokens.
Additionally, private credit stress could amplify volatility if it triggers forced deleveraging among institutional investors with cross-asset exposures. In such a scenario, digital asset markets may not be directly exposed to private credit defaults. However, secondary effects could still be felt, such as tight liquidity, weak stock markets, and declining investor confidence.
MicroStrategy’s STRC is strong as FSK declines — Livingston recognizes structural advantage
Nevertheless, some analysts remain optimistic. Bitcoin educator and content creator Adam Livingston claims that Bitcoin and digital credit have the potential to “destroy the private credit market.”
He contrasts FSK, a large publicly traded BDC that is often seen as a proxy for private credit, with STRC, MicroStrategy’s perpetual preferred stock nicknamed “Stretch.”
FSK has fallen about 45% over the past year and is trading at a significant discount to its reported base price of $21.99. Livingstone attributes this to higher receivables, increased credit stress and market skepticism about management’s valuations.
By comparison, STRC trades at a face value close to $100 and has delivered a total return in the low teens over the same period, even after Bitcoin’s 50% decline. Livingstone says the difference is in the structure.
Private credit relies on rare marks, gated liquidity, and investor confidence. STRC offers continuous price discovery, SEC disclosure, monthly dividend adjustments designed to fix prices near par, and a visible balance sheet of $2.25 billion in cash and over 713,000 BTC, he claims.
“Digital credit markets are replacing private credit markets, delivering honest prices, verifiable backstops and frictionless transactions all at once. Credit in the next decade will belong to structures that can deliver yield, transparency and resilience all at once,” he said.
Still, while this argument is persuasive, it is worth noting that private credit and digital credit operate on fundamentally different risk engines. One is tied to the borrower’s cash flow and economic cycles, and the other is tied to Bitcoin price fluctuations and financial strategy.
Digital credit is not a replacement for private credit, but may offer an alternative structure that appeals to investors who prioritize liquidity and transparency.
