According to Cointelegraph, leveraged Microstrategy (MSTR) exchange-traded funds (ETFs) have exceeded $400 million in net assets this week, driven by retail investors' interest in the highly volatile Bitcoin (BTC) plays. Data from Bloomberg Intelligence highlights this significant milestone.
Defiance ETFs launched the first leveraged MSTR ETF in August, followed by competitors REX Shares and Tuttle Capital Management in September, offering even more leveraged options. Bloomberg ETF analyst Eric Balchunas referred to this competitive surge as the “hot sauce arms race.” MicroStrategy, originally a business intelligence firm, transitioned into a cryptocurrency hedge fund in 2020 when founder Michael Saylor began using the company’s balance sheet to acquire Bitcoin.
MSTR and MSTU together broke $400m in net assets. Source: X
On August 1, MicroStrategy introduced a new performance metric called “Bitcoin Yield,” which measures BTC-per-share. This strategy aims to leverage the company's balance sheet to finance additional Bitcoin purchases, benefiting MSTR shareholders. On September 16, MicroStrategy announced plans to issue $700 million in debt, partly to acquire more BTC. The company may also consider lending out a portion of its Bitcoin holdings to generate yield, according to Mark Palmer, a Benchmark equity analyst.
Defiance ETFs launched the Defiance Daily Target 1.75X Long MSTR ETF (MSTX) on August 15, which aims to provide 175% long daily targeted exposure to MSTR’s performance. On September 18, REX Shares and Tuttle Capital Management jointly launched two ETFs designed to add even more leverage to MSTR’s performance: the T-REX 2X Long MSTR Daily Target ETF (MSTU) and the T-REX 2X Inverse MSTR Daily Target ETF (MSTZ), which aim for two-times leveraged long and short exposure to MSTR, respectively.
MicroStrategy uses “Bitcoin Yield” as a lodestar for performance. Source: MicroStrategy
These ETFs saw inflows of over $70 million in their first week of trading, as noted by Balchunas in a September 27 post on the X platform. He remarked on the surprising demand for these leveraged products, highlighting the market's appetite for high-speed investment opportunities. Leveraged ETFs, however, come with additional risks and tend to underperform due to the costs associated with daily rebalances to maintain leverage targets. They typically hold financial derivatives rather than the underlying stock.