Defiance ETF Would Bet on Falling MSTR Stock

Defiance, the fund issuer with $1.5 billion across 9 ETFs, is aiming to launch its first leveraged exchange-traded fund, which would bet on the price of high-flying MicroStrategy Inc. shares dropping. 

The company filed to launch the Defiance 2X Short MSTR ETF, which would reward investors doubly when MicroStrategy stock falls. MicroStrategy shares have gained four-fold over the past year as the AI software company pivoted and became one of the biggest bitcoin holders. Defiance is seeking to tap into demand from investors who believe the stock is poised for a fall.

Defiance also filed for a 2X Leveraged Ethereum Futures ETF this week, leaning further into the leveraged fund trend. 

Leveraged funds are typically aimed at active investors, as opposed to buy-and-hold types. They are intended to capture short-term moves in an equity and are viewed as high-risk investments that are not for average investors. Defiance's filing acknowledges that by seeking "daily 200% inverse investment results, it is very different from most other exchange-traded funds."

"It is also riskier than alternatives that do not use a short strategy," the filing said.

The filings come as traders increasingly seek investment vehicles they can use that make outsized bets on price swings and volatile stocks such as Nvidia Corp. and Tesla Inc. as well as cryptocurrencies. 

Both bitcoin and ethereum are bouncing from 2022 crypto winter lows, especially since spot bitcoin ETFs began trading early this year. Bitcoin is up over 55% year to date, while ethereum is up 48%, according to CoinMarketCap. 

While MicroStrategy is primarily a software company, its trading pattern aligns closely with cryptocurrencies since it adopted bitcoin as its primary reserve asset in 2020, holding over 200,000 bitcoins as of March 18th. 

"This thing is likely going to be about 30-40 times more volatile than the S&P 500," Bloomberg Senior ETF analyst Eric Balchunas wrote on X. "Shares should come with a Xanax prescription."

Spot Ether Race

Defiance's filing for the leveraged futures ethereum ETF comes as firms like Ark Invest, BlackRock Inc., and Fidelity Investments are awaiting an SEC decision on their proposals for a spot ethereum ETF. 

The SEC is expected to decide on approving or denying these funds in May. However, analysts have tempered their expectations, with Bloomberg analysts lowering the odds of approval to 25% from 50% in their latest assessment due to limited engagement from the agency with issuers regarding their applications.

Contact Lucy Brewster at [email protected].