Originally published on: September 27, 2024
The buzz around Leveraged MicroStrategy (MSTR) exchange-traded funds (ETFs) has hit a fever pitch as net assets soar past $400 million. This week, retail investors are flocking to these ultra-volatile Bitcoin plays, driving unprecedented growth in this unique corner of the market, as reported by Bloomberg Intelligence.
Just a few months ago, asset manager Defiance ETFs pioneered the world of leveraged MSTR ETFs, igniting a fierce competition with REX Shares and Tuttle Capital Management. The race to offer increasingly leveraged products has been dubbed the “hot sauce arms race” by Bloomberg ETF analyst Eric Balchunas.
Originally known as a business intelligence firm, MicroStrategy made a bold leap into the world of cryptocurrency in 2020, transforming into a de-facto cryptocurrency hedge fund. Under the leadership of founder Michael Saylor, the company embraced Bitcoin by leveraging its balance sheet to scoop up the digital currency.
The shift in strategy saw MicroStrategy adopt a new corporate performance metric on August 1: “Bitcoin Yield,” a key indicator of BTC-per-share performance. By leveraging its balance sheet to fuel more Bitcoin purchases, MicroStrategy aims to boost the value for MSTR shareholders.
In a strategic move on September 16, MicroStrategy announced plans to issue $700 million in debt, earmarked for further BTC acquisitions. Additionally, the company is exploring opportunities to lend out a portion of its Bitcoin holdings to generate additional yield, as revealed by Mark Palmer, a Benchmark equity analyst.
Capitalizing on the fervor around MicroStrategy, Defiance ETFs led the charge by launching the Defiance Daily Target 1.75X Long MSTR ETF (MSTX) on August 15. This ETF aims to provide 175% long daily targeted exposure to MSTR’s performance, catering to investors seeking amplified returns.
Following suit, asset managers REX Shares and Tuttle Capital Management rolled out two ETFs on September 18 designed to maximize the leverage on MSTR. The T-REX 2X Long MSTR Daily Target ETF (MSTU) and T-REX 2X Inverse MSTR Daily Target ETF (MSTZ) offer two-times leveraged long and short exposure to MSTR, respectively.
The market response to these leveraged ETFs has been overwhelmingly positive, with inflows exceeding $70 million in the initial week of trading. Eric Balchunas noted the rapid adoption of these products, emphasizing the current climate of high-speed investing.
While leveraged ETFs introduce additional risk and may underperform due to daily rebalances, the allure of magnified returns continues to attract investors seeking exposure to the volatile world of Bitcoin. As the “hot sauce arms race” intensifies, the future of Leveraged MicroStrategy ETFs remains as unpredictable as the digital currency market itself.
