US Debuts First Leveraged MicroStrategy ETF to Amplify Bitcoin Exposure

The first leveraged exchange-traded fund (ETF) to target MicroStrategy stock, called MSTX, has been approved by the U.S. Securities and Exchange Commission (SEC). It was issued by Defiance ETF.

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The U.S. Securities and Exchange Commission (SEC) has approved the launch of the first leveraged single-stock exchange-traded fund (ETF) targeting MicroStrategy Incorporated.

Named MSTX, this groundbreaking ETF is set to offer investors enhanced exposure to Bitcoin, the digital asset that has become central to MicroStrategy’s corporate strategy.

Leveraged ETF MSTX Aim To Amplify Bitcoin Exposure

According to Defiance ETFs, a firm known for its thematic and leveraged ETFs, the innovative MSTX is the first in the U.S. to combine leveraged investing with a focus on a single stock linked to Bitcoin, marking a new chapter in institutional crypto adoption.

Defiance ETFs is proud to unveil MSTX, the first single-stock long leveraged ETF for MicroStrategyhttps://t.co/0uwqp1Tcbt#MSTX #LeverageETFs pic.twitter.com/bGVoundwap — Defiance Investments (@defianceinvest) August 15, 2024

For more context, MSTX is a leveraged exchange-traded fund (LETF) designed to magnify the returns associated with MicroStrategy’s stock by employing financial derivatives and debt.

Unlike traditional ETFs that track their underlying assets on a one-to-one basis, LETFs aim to achieve a higher multiple of returns.

Specifically, MSTX seeks to deliver 175% of the daily return of MicroStrategy’s stock (MSTR).

In practical terms, if MicroStrategy’s stock experiences a 1% increase, MSTX is expected to rise by 1.75% and vice versa.

Sylvia Jablonski, CEO of Defiance ETFs, highlighted the unique opportunity presented by MSTX.

He said,

“Given MicroStrategy’s inherent higher beta than Bitcoin, MSTX offers a unique opportunity for investors to maximize their leverage exposure to the Bitcoin market within an ETF wrapper.”

Leveraged ETFs, including MSTX, are designed to pursue daily investment objectives with performance amplified on a daily basis but subject to variability over longer periods.

This characteristic introduces additional risks, especially due to the fund’s focus on a single stock.

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

Defiance launching 1.75x Microstrategy ETF $MSTX tmrw which, even tho it's 'only' 1.75x (they prob tried 2x but SEC pushed back) it will be the most volatile ETF you can get in US market (equiv to 13x SPY) edging out $MSOX (2x weed), a big step in the hot sauce arms race. pic.twitter.com/APcfJt8O7T — Eric Balchunas (@EricBalchunas) August 14, 2024

However, due to the inherent risks of leveraged investments, MSTX is not intended for retail investors. Instead, it targets sophisticated investors such as traders and those employing dynamic investment strategies.

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

Meanwhile, ETF issuer T-Rex group had in June filed for its 2X Long MSTR Daily Target ETF, which analysts claim could become the most volatile ETF in the U.S.

Investor’s Interest in Bitcoin-related assets and Market Impact of MicroStrategy’s Stock

As of Q2 2024, MicroStrategy’s balance sheet holds around 226,500 Bitcoins, acquired through substantial debt leverage, effectively making its stock a proxy for Bitcoin investments.

This comes amid a surge in Bitcoin-related investment vehicles, driving price appreciation. Following the US launch of Bitcoin ETFs in early February, these products drove 75% of new Bitcoin investment, propelling BTC’s price above $50,000.

$10 BILLION worth of #Bitcoin was bought through the ETFs in Q1 2024

The most successful ETF launch ever 💥 pic.twitter.com/xtOGSWK7GG — Quinten | 048.eth (@QuintenFrancois) May 18, 2024

Similarly, MicroStrategy’s stock has demonstrated robust performance, significantly outperforming most companies in the S&P 500. Over the past six months, MicroStrategy’s shares have risen by over 70%, compared to a 13% increase in Bitcoin’s price.

Michael Saylor, founder of MicroStrategy, recently highlighted this achievement, noting that the company’s stock has outperformed 499 of the 500 firms in the S&P 500 index since adopting Bitcoin as its primary treasury reserve asset.