US Debuts First Leveraged MicroStrategy ETF to Amplify Bitcoin Exposure

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Jimmy Aki

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Jimmy Aki

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Jimmy has nearly 10 years of experience as a journalist and writer in the blockchain industry. He has worked with well-known publications such as Bitcoin Magazine, CCN, and Blockonomi, covering news...

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August 14, 2024

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The U.S. Securities and Exchange Commission (SEC) gave the green light to the first leveraged single-stock exchange-traded fund (ETF) focused on MicroStrategy Incorporated.

This new ETF, named MSTX, will offer investors a way to potentially amplify their exposure to Bitcoin, the cryptocurrency central to MicroStrategy’s corporate strategy.

Leveraged ETF MSTX Aim To Amplify Bitcoin Exposure

Defiance ETFs, known for its thematic and leveraged ETFs, launched MSTX as the first U.S. fund to combine leveraged ETF investing with a focus on a single stock tied to Bitcoin, marking a new chapter in institutional crypto adoption.

MSTX is a leveraged ETF designed to magnify the returns of MicroStrategy’s stock (MSTR) by utilizing financial derivatives and debt, unlike traditional ETFs that track assets on a one-to-one basis.

The fund seeks to deliver 175% of the daily return of MSTR. This means if MSTR sees a 1% increase, MSTX is expected to rise by 1.75%, and the reverse is also true.

Sylvia Jablonski, CEO of Defiance ETFs, pointed out that MSTX allows investors to potentially maximize their leveraged exposure to the Bitcoin market within an ETF structure due to MicroStrategy’s inherently higher beta compared to Bitcoin.

Leveraged ETFs like MSTX are designed for daily investment objectives. While their performance is amplified daily, this can fluctuate over longer periods.

This characteristic, combined with the fund’s focus on a single stock, introduces additional risks.

Eric Balchunas, Senior ETF Analyst at Bloomberg, emphasized these risks in a recent comment on X, calling MSTX “the most volatile ETF you can get in the US market.”

Due to the risks associated with leveraged investments, MSTX is not intended for retail investors but rather for sophisticated investors, such as traders and those using dynamic investment strategies.

This cautious approach aligns with recent SEC approvals for similar leveraged single-stock ETFs, including those focused on Tesla and Apple. However, such products remain a niche segment within the broader ETF market.

MicroStrategy’s Bitcoin Strategy and Market Impact

In June, ETF issuer T-Rex Group filed for its 2X Long MSTR Daily Target ETF, a product anticipated to be highly volatile within the U.S. market.

By Q2 2024, MicroStrategy’s balance sheet contained approximately 226,500 Bitcoins, acquired through substantial debt leverage, effectively turning its stock into a proxy for Bitcoin investments.

This development coincides with a growing number of Bitcoin-related investment vehicles, a trend contributing to price appreciation.

Following the U.S. launch of Bitcoin ETFs in early February, these products became responsible for 75% of new Bitcoin investment, propelling BTC’s price above $50,000.

This positive trend extends to MicroStrategy’s stock as well. MicroStrategy’s stock has flourished, exceeding the returns of a large majority of companies listed on the S&P 500 over the past two quarters. This strong performance makes it an attractive option for investors seeking exposure to Bitcoin through a leveraged ETF like MSTX.

Michael Saylor, founder of MicroStrategy, recently emphasized the company’s stock performance, noting its substantial gains since adopting Bitcoin as its primary treasury reserve asset. This strategy has positioned MicroStrategy as a potential frontrunner for investors looking to gain leveraged exposure to Bitcoin through ETFs.