Strategy Inc. (NASDAQ:MSTR), once the poster child for turning Bitcoin exposure into a publicly listed equity, is rapidly morphing into the first real stress test for the booming single-stock leveraged ETF market.
After a blistering rally earlier this year, the trade has reversed so sharply that the products built around Strategy’s daily moves have crashed into the ranks of the 10 worst-performing ETFs in the US, per Bloomberg.
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On Tuesday, Strategy shares are up more than 6% on news that it has joined the Open Semantic Interchange (OSI). The move will accelerate Strategy’s open ecosystem strategy and expand the reach of Strategy Mosaic — its AI-powered Universal Semantic Layer built for enterprise data integration.
The announcement landed on a day of heightened Bitcoin volatility, which helped lift Strategy's stock. This type of volatility is whiplashing the leveraged ETFs tied to Strategy.
Meanwhile, Strategy’s valuation premium-the mNAV ratio-has all but evaporated, raising fears that the company may eventually be forced to sell Bitcoin. JPMorgan warns it could even be dropped from the MSCI USA or Nasdaq 100, potentially unleashing billions in passive outflows.
The most visible ETFs caught in the crossfire include the 2x daily leveraged ETFs pegged to Strategy’s stock.
Both Defiance Daily Target 2x Long MSTR ETF (NASDAQ:MSTX) and T-Rex 2X Long MSTR Daily Target ETF (BATS:MSTU) have tumbled more than 80% this year, despite today’s 15% rise.
A third fund, GraniteShares 2x Long MSTR Daily ETF (NASDAQ:MSTP), has seen a similar wipeout since its debut in June. Together, they’ve shed about $1.5 billion in assets since early October, according to Bloomberg.
What was marketed as a turbocharged Bitcoin proxy has morphed into a high-octane cautionary tale of how leverage and volatility can collide.
Other Leveraged Single-Stock ETFs Now In Focus
The volatility and 80% crash in these leveraged ETFs this year has cast a wider shadow over the more than $20 billion single-stock ETF niche. Traders are now reassessing similar high-risk products, including:
- Direxion Daily TSLA Bull 1.5X (NASDAQ:TSLL): Super-popular with retail traders, yet highly leveraged to the rate-sensitive volatility of Tesla Inc (NASDAQ:TSLA).
- Direxion Daily NVDA Bull 1.5X (NASDAQ:NVDL): Market darling while Nvidia Corp (NASDAQ:NVDA) soared, but vulnerable if AI sentiment cools or earnings disappoint
- Direxion Daily AMZN Bull 1.5X (NASDAQ:AMZZ): Another top-performing leveraged bet on Amazon.com Inc (NASDAQ:AMZN) that faces the same rapid drawdown dynamics if tech momentum fades.
These funds are not inherently flawed, but the Strategy saga does underline how performance can implode in an instant when the underlying stock embarks on a volatility spiral.
For a category of ETFs built on retail excitement, the sector is now experiencing perhaps its most sobering moment: a reminder that turbocharging a volatile stock can turn a crowd favorite into one of the market’s fastest-moving losers.
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