This follows from the list of coercion types in the Rust Reference. Two are applicable here:
T_1 to T_3 where T_1 coerces to T_2 and T_2 coerces to T_3 (transitive case)
&T or &mut T to &U if T implements Deref<Target = U>.
First, since &T: Deref<Target = T>, &&&&&str can be coerced to &&&&str, &&&&str to &&&str, &&&str to &&str, and &&str to &str. Then, by the transitive case, &&&&&str can be coerced to &str, matching your observation.