SEC approves first leveraged MicroStrategy ETF

First Leveraged MicroStrategy ETF

The U.S. Securities and Exchange Commission has approved the launch of MSTX, the first leveraged ETF for MicroStrategy.

MSTX is issued by Defiance ETFs, a company that focuses on leveraged ETFs. Defiance CEO Sylvia Jablonski said the leveraged MicroStrategy ETF provides greater exposure to Bitcoin because MicroStrategy is one of the largest corporate holders.

As of the second quarter of 2024, MicroStrategy held approximately 226,500 Bitcoins on its balance sheet. The company acquired most of its bitcoins by borrowing money, making the stock itself a leveraged bitcoin investment.

Given MicroStrategy’s higher beta compared to bitcoin, MSTX offers investors a unique opportunity to maximize leveraged exposure to the bitcoin market within an ETF wrapper, Jablonski said.

Leveraged ETFs pursue daily investment targets, meaning performance is magnified daily but varies over longer periods of time. MSTX carries additional risk from its use of leverage and concentration in a single stock.

Most Volatile ETF Ever

The leveraged MicroStrategy ETF “will be the most volatile ETF in the U.S. market,” Eric Balchunas, senior ETF analyst at Bloomberg, commented on X.

After years of rejecting proposals, the SEC recently finally allowed leveraged single-stock ETFs. GraniteShares and Direxion have also approved 3x-leveraged Tesla and Apple ETFs, respectively. However, leveraged stock ETFs remain a niche market, accounting for less than 1% of total ETF assets.

Defiance hopes MSTX can stand out with its peg to Bitcoin. But the ultimate success of this first-of-its-kind ETF will depend on investor acceptance and MicroStrategy's performance as a Bitcoin proxy.

MicroStrategy

MicroStrategy is one of the first public companies to hold Bitcoin on its balance sheet.

According to an August 11 post by MicroStrategy founder Michael Saylor, he wrote: "Four years ago today, MicroStrategy adopted Bitcoin as its primary treasury reserve asset; since then, $MSTR has outperformed 499 of the 500 stocks in the S&P 500."

Due to the attractive price performance of MicroStrategy shares, which have outperformed Bitcoin in the past few months, the new leveraged ETF is likely to attract significant interest from investors.

Previously, MicroStrategy's financial report showed that it purchased another 12,222 bitcoins at a price of $805 million in the second quarter of this year, bringing its total bitcoin holdings to 226,500 BTC, worth $14.7 billion at current prices.  MicroStrategy reported quarterly revenue of $111.4 million, down 7% year-on-year, and a loss of $5.74 per share. The net loss in the second quarter was $123 million, a slight improvement from the net loss of $137 million in the same period last year.

According to Bloomberg survey data, this is far below analysts' expectations, who expected a quarterly loss of $0.78 per share and revenue of $119.3 million.

But data from Bitstamp shows that in the past six months, MicroStrategy's stock price has risen by more than 70%, while the price of Bitcoin has only risen by 13%.