Leveraged MicroStrategy ETFs Are Surging as Bitcoin Nears All-Time High

Leveraged exchange-traded funds (ETFs) based around the surging stock of software firm MicroStrategy (MSTR)—the largest corporate treasury reserve holder of Bitcoin—are seeing strong demand as BTC itself approaches a potential new all-time high price. And it's a highly competitive space, too.

ETF issuer Defiance announced Tuesday that it is increasing leverage on its funds that track the stock price of MicroStrategy, matching the leverage amount set by rival T-Rex. That competitor launched its fund later, but it has quickly taken the lead as investors embrace what's been described by one analyst as an especially risky, "ghost pepper" bet on Bitcoin.

The MSTX and SMST ETFs will offer 2x daily target exposure to Bitcoin-proxy MicroStrategy’s stock, up from 1.75x and 1.5x, respectively, Defiance said Tuesday in a statement. The increased leverage will enable the issuer’s ETFs to remain competitive amid a BTC market rally, as similarly risky MSTR-based funds see massive influxes of investors’ dollars.

“We recognized the importance of delivering enhanced leverage in response to investor demand and competitive dynamics,” Defiance ETFs CEO Sylvia Jablonski said, in a statement. “With the transition to 2x leverage, Defiance ETFs is committed to providing investors with leading-edge tools to engage with both bullish and bearish views on the Bitcoin market, and MicroStrategy’s strategic role within it.”

Bitcoin is trading at $71,835 as of publication time, CoinGecko data shows. On Tuesday, Bitcoin came within $175 of matching its all-time high price of $73,737 set in March, and remains not far off from that mark as of now.

MicroStrategy holds 252,500 BTC, or more than $18 billion worth at the current peak. The software firm began amassing Bitcoin for its treasury reserve in 2020, and has reaped the rewards of the coin’s growing price—not only via the value of its reserve assets, but also its ballooning share price.

MSTR hit a nearly 25-year-high share price above $266 on Tuesday, and is set to report its quarterly earnings late Wednesday. As MicroStrategy’s own share price has skyrocketed, such ETFs offer investors a supercharged way to bet on potential future gains.

Amid the price run-ups for both Bitcoin itself and MicroStrategy’s stock, Defiance’s MSTX has swelled in size, reaching nearly nearly $600 million in assets under management (AUM) as of this writing, according to the firm’s data. SMST, which lets traders bet on potential drops in price for MicroStrategy, currently has $5 million in AUM.

The upping of MSTX and SMST’s potential returns—and the risk that comes alongside such bets—comes as Bitcoin bulls are embracing long-leverage funds that hold debt to amplify their positions, as Bitcoin flirts with a new, record-smashing price target. 

The T-Rex 2X Long MSTR Daily Target ETF (MSTU) has amassed roughly $1 billion in assets under management as of publication time, according to Bloomberg Senior ETF Analyst Eric Balchunas’ data. The ETF’s assets have grown about 225% since its launch six weeks ago, the data shows.

Balchunas noted surprise that the T-Rex leveraged MicroStrategy fund had outpaced Defiance’s version, despite launching later, and credited that gain to the higher leverage at the time.

“MSTU is essentially a 4x Bitcoin ETF,” Balchunas tweeted Monday.

He said that the T-Rex fund’s volatility over the last 30 days is at 168%, while BlackRock’s market-leading iShares Bitcoin Trust (IBIT) ETF is at 41%. U.S. regulators haven’t approved 3x or higher leveraged Bitcoin ETFs, but Balchunas suggested that these funds effectively give investors the same kind of exposure via a different method.

“They effectively created the ultimate degen trading tool,” he said of T-Rex. “What a country.”

Edited by Andrew Hayward