Investor Interest and Competitive Landscape

Data from Bloomberg Intelligence indicates that retail investors are increasingly attracted to these leveraged Microstrategy (MSTR) ETFs. The first leveraged MSTR ETF was launched by asset manager Defiance ETFs in August, followed by competitors REX Shares and Tuttle Capital Management in September, which introduced even more leverage options. Bloomberg ETF analyst Eric Balchunas referred to this trend as the “hot sauce arms race.”

Microstrategy’s Shift in Strategy

MicroStrategy began its transformation into a cryptocurrency hedge fund in 2020 when founder Michael Saylor decided to utilize the company’s balance sheet to acquire Bitcoin. This strategic pivot has seen the company integrate cryptocurrency heavily into its operations.

Microstrategy Net Assets Breakdown
MSTR and MSTU ETFs collectively exceed $400 million in net assets.

New Performance Metrics

On August 1, MicroStrategy announced a new key performance indicator called “Bitcoin Yield,” which focuses on BTC-per-share. This measure aims to drive down costs for future Bitcoin purchases, providing potential benefits for shareholders.

Recent Financial Strategies

On September 16, MicroStrategy revealed plans to issue $700 million in debt, partially allocated for additional Bitcoin acquisitions. Industry analysts suggest that the company may also explore lending a segment of its Bitcoin holdings to generate additional yield.

ETFs Aim for Enhanced Leverage

The Defiance Daily Target 1.75X Long MSTR ETF (MSTX) was launched on August 15 and seeks to provide 175% long daily targeted exposure to Microstrategy’s performance. Following this, REX Shares and Tuttle Capital introduced two ETFs, T-REX 2X Long MSTR Daily Target ETF (MSTU) and T-REX 2X Inverse MSTR Daily Target ETF (MSTZ), aimed at two-times leveraged long and short exposures to MSTR, respectively.

Bitcoin Yield Performance
MicroStrategy adopts “Bitcoin Yield” as a key performance metric.

Market Response and Risks

These new ETFs attracted over $70 million in inflows during their initial trading week, indicating strong market interest. However, it is important to note that leveraged ETFs introduce additional risks, often leading to underperformance due to associated costs of maintaining leverage targets through daily rebalances.

Overall, the dynamic landscape of leveraged ETFs tied to Microstrategy highlights the high demand and competitive pressures in the cryptocurrency investment space.