SEC Approves First Leveraged MicroStrategy ETF

The Securities and Exchange Commission has approved the launch of MSTX, the first leveraged single-stock ETF targeting MicroStrategy, which seeks to achieve 175% of the daily return of MicroStrategy stock.

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— Bitcoin Magazine (@BitcoinMagazine) August 15, 2024

MSTX is issued by Defiance ETFs, which focuses on thematic and leveraged ETFs. According to Defiance CEO Sylvia Jablonski, the leveraged MicroStrategy ETF provides increased exposure to Bitcoin as MicroStrategy is one of the largest corporate holders.

As of Q2 2024, MicroStrategy has approximately 226,500 Bitcoins on its balance sheet. The company took on debt to acquire most of its Bitcoins, making the stock itself a leveraged Bitcoin play.

“Because MicroStrategy has a higher implied beta compared to bitcoin, MSTX provides investors with a unique opportunity to maximize leveraged exposure to the bitcoin market within an ETF wrapper,” Jablonski said.

Leveraged ETFs pursue daily investment objectives, so their performance is amplified daily, but not over the long term. MSTX takes on additional risk by using leverage and focusing on a single stock.

Eric Balchunas, Bloomberg’s chief ETF analyst, said in a note to clients that the leveraged MicroStrategy ETF “will likely be the most volatile ETF you can get in the U.S. market.”

The SEC recently approved leveraged single-stock ETFs after years of rejections. GraniteShares and Direxion have also approved 3x leveraged Tesla and Apple ETFs, respectively. However, leveraged stock ETFs are still a small niche, accounting for less than 1% of total ETF assets.

Defiance hopes MSTX can break away from the pack with its Bitcoin link, but the ultimate success of this first-of-its-kind ETF will depend on investor reaction and MicroStrategy’s performance as a Bitcoin proxy.