US SEC Authorizes the First Leveraged MicroStrategy ETF

The US Securities and Exchange Commission (SEC) has lent its approval to the launch of MSTX, the first leveraged single-stock ETF targeting MicroStrategy. 

This comes after years of rejecting proposals to approve leveraged single-stock ETFs.The ETF will aim to deliver 175% of MicroStrategy’s stock’s daily return.

A statement from Defiance ETFs CEO Sylvia Jablonski, released on Aug 15, 2024, reads:

As we introduce MSTX, our long leverage MicroStrategy ETF, we’re amplifying the potential for investors seeking long-leveraged exposure to Bitcoin. Given MicroStrategy’s inherent higher beta compared to Bitcoin, MSTX offers a unique opportunity for investors to maximize their leverage exposure to the Bitcoin market within an ETF wrapper.

MicroStrategy Holds Huge Amounts of Bitcoin

Founded in 1989, MicroStrategy is renowned for its visionary approach to data analytics and business intelligence. It has since become prominent in the Bitcoin market. The company is strategically focused on becoming one of the largest holders of Bitcoin.

This policy has attracted investors desiring leveraged exposure to Bitcoin.  

MicroStrategy’s Bitcoin holdings as of Q2 2024 were about  226,500 making it one of the coin’s largest corporate holders.

Notably, most of MicroStrategy’s Bitcoin was acquired through debt, which makes the stock a leveraged Bitcoin play in itself. 

The US Securities and Exchange Commission approved the first leveraged Bitcoin futures exchange-traded fund (ETF) in June last year.

MSTX is Likely to be Volatile

Unlike buy-and-hold types, leveraged funds typically target active investors. They are meant to capture short-term moves in equity and are viewed as high-risk investments that are not ideal for average investors. 

Defiance’s filing notes that by seeking “daily 200% inverse investment results, it is very different from most other exchange-traded funds. It also portends higher risk than options that don’t use a short strategy.”

In a nutshell, the fund is most suitable for sophisticated investors, including active investors and traders whose strategies are dynamic. 

An investor who lacks understanding of such funds, or does not intend to indulge in active management of their funds as well as keep track of their investments have to be cautious of buying shares in these funds.

In a post on X, Bloomberg’s Senior ETF Analyst Eric Balchunas prophesied that a leveraged MicroStrategy ETF will be the most volatile ETF in the US market, ahead of SMS OX (2x weed).

Who are Defiance ETFs?

Defiance is a leading issuer of ETFs that prioritizes income, thematic and leveraged investing. The company is a pioneer in leveraged ETFs targeting traders on the lookout for tactical opportunities.

It boasts an assemblage of first-mover leveraged and thematic ETFs that empower investors to air targeted opinions on innovations causing disruptions. Some of such innovations include quantum computing, AI, and ML.

Apart from filing for the 2X Short MSTR ETF in March 2024, Defiance also filed for a 2X Leveraged Ethereum Futures ETF the following month, leaning further into the leveraged fund trend.