Leveraged MicroStrategy (MSTR) exchange-traded funds (ETFs) broke $400 million in net assets this week as retail investors continue to pour into the ultra-volatile Bitcoin (BTC) plays, according to data from Bloomberg Intelligence.
Asset manager Defiance ETFs launched the first leveraged MSTR ETF in August. Competitors REX Shares and Tuttle Capital Management in September with an even more leveraged offering set off what Bloomberg ETF analyst Eric Balchunas has dubbed the “hot sauce arms race.”
Originally a business intelligence firm, MicroStrategy transformed into a de-facto cryptocurrency hedge fund in 2020 when founder Michael Saylor started using the company’s balance sheet to buy Bitcoin.
Source: Eric Balchunas
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On Aug. 1, MicroStrategy adopted a new lodestar for corporate performance: “Bitcoin Yield,” a measure of BTC-per-share. It aims to use its balance sheet to cheaply finance more Bitcoin buys, benefitting MSTR shareholders.
On Sept. 16, MicroStrategy announced plans to issue $700 million in debt, partly to buy more BTC. It could also start lending out a portion of its Bitcoin holdings to generate yield, Mark Palmer, a Benchmark equity analyst, told Cointelegraph on Sept. 24.
On Aug. 15, Defiance ETFs launched the Defiance Daily Target 1.75X Long MSTR ETF (MSTX). It “seeks to provide 175% long daily targeted exposure to” MSTR’s performance, Defiance said.
On Sept. 18, asset managers REX Shares and Tuttle Capital Managed jointly launched two ETFs designed to add even more leverage to MSTR’s performance.
The ETFs — T-REX 2X Long MSTR Daily Target ETF (MSTU) and T-REX 2X Inverse MSTR Daily Target ETF (MSTZ) — aim for two-times leveraged long and short exposure to MSTR, respectively, REX and Tuttle said.
MicroStrategy uses “Bitcoin Yield” as a lodestar for performance. Source: MicroStrategy
They clocked inflows of more than $70 million in the first week of trading, Balchunas said in a Sept. 27 post on the X platform.
“I didn’t think there was room for both (esp so quickly), it [shows] just how much 'need for speed' there is out there. What a country,” Balchunas said.
Leveraged ETFs add additional risk to MSTR and tend to underperform due to the costs of daily rebalances to maintain a leverage target. They also typically hold financial derivatives rather than the underlying stock.
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