In a sign that American investors are gravitating back towards riskier assets, exchange-traded funds (ETFs) that allow leveraged betting on MicroStrategy stock have seen a surge in popularity. The MSTX fund, established in August, has already amassed $357.6 million in assets under management, aiming to provide investors with 1.75 times the daily performance of MicroStrategy’s stock. A newer addition, the MSTU ETF, seeks to offer twice the leverage, and despite its recent launch, it has quickly grown to over $80 million in assets.
These instruments are examples of “long leverage” funds, which employ debt to magnify their exposure. Such strategies offer the potential for enhanced returns relative to the underlying asset, but they also carry a heightened risk of losses. Bloomberg ETF analyst Eric Balchunas expressed surprise at the rapid embrace of these high-risk investment vehicles, noting their rapid uptake as “wild” and previously likening them to the “ghost pepper of ETF hot sauce” because of their expected volatility.
MicroStrategy has transformed its business model significantly. Initially known for its data analytics software, in 2020, the company made a pivot by adding Bitcoin to its balance sheet, aiming to leverage the cryptocurrency for investor returns. This move has seen the company’s stock soar, establishing it among the top-performing public U.S. firms. With continuing purchases, MicroStrategy now holds 252,220 Bitcoins, valued at approximately $16.6 billion. The company has embraced its rebranding as a “Bitcoin development company,” seeking to offer investors exposure to the seminal digital currency while also exploring further ventures within the Bitcoin ecosystem.
The launch of MSTX and MSTU, despite their risks, underline a growing interest among investors in leveraging digital currency’s potential through the stock market. Defiance ETFs, the company behind MSTX, cautioned that these funds are meant for investors prepared to actively manage and monitor their portfolios, hinting at the complexity and high stakes involved.