MicroStrategy has once again made headlines, this time with its aggressive new financial strategy and leveraged ETFs. On August 1st, the company adopted a new performance metric dubbed "Bitcoin Yield," a measure designed to track the BTC-per-share value. By using its balance sheet to finance additional Bitcoin buys, MicroStrategy aims to bolster shareholder returns. In line with this, on September 16th, the company announced plans to issue $700 million in debt, partly to buy more Bitcoin. Additionally, MicroStrategy may even explore lending out portions of its Bitcoin holdings to generate yield, according to Mark Palmer, a Benchmark equity analyst.

While this ambitious approach has drawn attention, it’s the introduction of several leveraged ETFs tied to MicroStrategy’s performance that has investors buzzing. On August 15th, Defiance ETFs launched the Defiance Daily Target 1.75X Long MSTR ETF (MSTX), which aims to deliver 175% long daily exposure to MicroStrategy’s stock. Shortly after, on September 18th, REX Shares and Tuttle Capital Management took things further by launching two even riskier leveraged ETFs — the T-REX 2X Long MSTR Daily Target ETF (MSTU) and the T-REX 2X Inverse MSTR Daily Target ETF (MSTZ). These aim for two-times leveraged long and short exposure to MicroStrategy stock.

While these ETFs experienced an inflow of over $70 million within their first week of trading, according to analyst Eric Balchunas, the risks associated with leveraged ETFs should not be overlooked. These types of funds, which rely on financial derivatives rather than the underlying stock, are notorious for underperforming due to the high costs of daily rebalancing required to maintain leverage. For Bitcoin bulls hoping to ride the MicroStrategy wave, these ETFs present significant risks, and careful consideration is advised. The promise of amplified returns comes with the potential for equally amplified losses.

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