"Leveraged MSTR ETFs Plummet Amid Volatility"

Leveraged ETFs linked to MicroStrategy (MSTR) have shown significant underperformance amid recent market volatility, according to research findings. This article explores the challenges faced by these investment vehicles, particularly those with exposure to cryptocurrencies, and examines their performance issues and market dynamics.

The T-REX 2X Long MSTR Daily Target ETF (MSTU) has experienced a steep decline, falling approximately 81% since its peak on November 20. This ETF, designed to provide leveraged exposure to MSTR, has lost an alarming 40% of its value within the last three trading sessions alone. The recent sell-off corresponds with a 20% drop in the underlying shares of MSTR during the same period, indicating a strong correlation between the ETF’s performance and the stock it tracks.

Investors in leveraged ETFs face unique risks, particularly during periods of high market volatility. Research by GSR Markets reveals that these investment vehicles often lag behind traditional strategies by more than 20% during such times. This is primarily due to the costs associated with daily rebalancing required to maintain their leverage targets. The reliance on financial derivatives rather than direct ownership of stock exacerbates this issue, contributing to poor performance outcomes for investors during turbulent market phases.

Initially considered a business intelligence firm, MSTR underwent a transformation into a cryptocurrency hedge fund in 2020. This shift was driven by founder Michael Saylor’s decision to utilize the company’s balance sheet for purchasing Bitcoin. MSTR’s aggressive investment has amassed over $33 billion in Bitcoin at an average cost of approximately $66,000 per coin, leading to an unrealized profit of more than $10 billion. Despite this impressive growth in the past, MSTR shares have seen about 15% depreciation year-to-date, primarily attributable to Bitcoin’s recent price corrections.

The launch of the MSTU and the T-REX 2X Inverse MSTR Daily Target ETF (MSTZ) in September by asset managers REX Shares and Tuttle Capital Managed represents a significant move towards offering more leveraged exposure to MSTR’s market movements. The launch follows similar products that achieved notable volume on their opening day, highlighting growing interest in such investment vehicles.

Investors need to exercise caution when considering leveraged ETFs in