ETF Spotlight: MSTX Bets Big on MicroStrategy

The Defiance Daily Target 1.75X Long MSTR ETF (MSTX), which uses leverage to amplify MicroStrategy stock, reflects recent ETF innovation that aims to address investors’ growing appetite for risk and crypto-focused assets. 

MSTX, which has already attracted $150 million in assets since its Aug. 15 debut, seeks daily leveraged investment results of 1.75 (175%), the daily percentage change in the share price of MicroStrategy. Several years ago, this software provider pivoted its strategy to become one of the world’s largest bitcoin holders. 

Issuers have debuted such single stock-focused funds with growing regularity in recent months. Such products allow investors who think a stock will rise to make a bullish bet on a leveraged ETF that can magnify returns by up to 300%. Other bearish inverse ETFs will allow investors to bet against that stock the next day if the underlying stock’s price declines. 

This trend dovetails with growing interest in crypto ETFs, including funds based on the spot price of bitcoin and ether, the token of the Ethereum blockchain. 

What Is MSTX and How Does It Work?

Like other leveraged ETFs, MSTX aims to amplify the daily returns of its benchmark. The fund doesn’t hold MSTR but will use debt or financial derivatives, such as options contracts, to amplify the stock’s returns.  

The daily return amplification strategy does not typically translate to higher long-term returns. The fund is a short-term tactical tool. 

Tip: See our article on Why Leveraged ETFs Decay. 

Who Is MicroStrategy?

Tysons Corner, Va.-based MicroStrategy, which was founded in 1989 by Michael Saylor, provides business intelligence (BI), mobile software, and cloud-based services. The company’s enterprise analytics platform helps organizations analyze data and make informed business decisions by offering tools for data discovery, visualization, and reporting. 

In recent years, guided by Saylor’s advocacy of cryptocurrency markets, MicroStrategy has gained significant attention for its large-scale bitcoin investments. Starting in August 2020, the company began converting a substantial portion of its corporate treasury into bitcoin, viewing it as a store of value and a hedge against inflation. This move has made MicroStrategy one of the world’s largest institutional bitcoin holders. 

MicroStrategy's dual focus on business intelligence solutions and its high-profile bitcoin investments make it a unique and influential company in the tech and financial sectors. 

Bitcoin ETFs vs MSTX

Some analysts highlight that a bet on MicroStrategy is an expensive bet on bitcoin. They say this because MSTR’s performance closely tracks bitcoin’s price, which is what a low-cost spot bitcoin ETF does. The “expensive” part is due to MSTR’s lofty price-earnings ratio, which has averaged above 300 over the past five years, according to financial data and analysis firm, YCharts. 

But investors who like the combination of bitcoin’s potential price gains and MicroStrategy’s business model may be attracted to MSTR, or who are comfortable with risk, MSTX may be a good fit.