American investors appear to be regaining their appetite for risk, as new exchange-traded funds (ETFs) giving a leveraged position to MicroStrategy stock are booming.
MSTX, which launched in August, now has $357.6 million in assets under management. The fund aims to give investors daily leveraged investment results of 1.75 times (or 175% of) the daily percentage change in MicroStrategy stock.
Meanwhile, MSTU—an even riskier ETF that launched last week—gives 2 times (or 200% of) the leveraged investment results. The product has notched huge inflows and now has over $80 million in assets.
The two ETFs are “long leverage” funds, meaning they hold debt to amplify their positions. Returns for investors can be greater than the tracked asset—but that means losses can also be painful.
Bloomberg ETF analyst Eric Balchunas said on Twitter (aka X) Friday that he didn't think investors would want such risky investments—at least not at this rate. “I didn't think there was room for both (especially so quickly),” he wrote, further describing their popularity as “wild.”
Balchunas previously described such products as the “ghost pepper of ETF hot sauce” due to their expected extreme levels of volatility.
MicroStrategy is a public company that focuses on data-analyzing software. But in 2020, it put Bitcoin on its balance sheet as part of a strategy to get returns for its investors.
Its stock has since shot through the roof—making it one of the best-performing public-traded U.S. companies—and the company hasn't stopped buying the cryptocurrency. The company now holds 252,220 Bitcoin, valued at $16.6 billion today, with multiple buys announced in recent weeks.
Now, MicroStrategy has rebranded itself as a “Bitcoin development company” that securitizes the cryptocurrency: investors buy the company's stock to get exposure to the biggest and oldest digital asset. The company has also explored other ventures in the Bitcoin space, such as the Lightning Network, and putting digital identities on the biggest crypto network.
The two new ETFs based around MicroStrategy stock are risky, but could promise big gains for investors looking for leveraged exposure to Bitcoin. In fact, when MSTX launched, the company behind the ETF, Defiance ETFs, warned investors that the fund was “not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios.”
Edited by Andrew Hayward