MicroStrategy: A Potential Bitcoin Proxy? Now You Can Trade Its Moves With Leveraged MSTR ETFs
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September 25, 2024 08:30 AM Eastern Daylight Time
By Meg Flippin, Benzinga
When it comes to cryptocurrency exposure, indirect can sometimes be best. Sure, you can buy Bitcoin and try to time the market to make a simple profit. Or, if you’re a savvy trader, you may want to consider a leveraged bet. After all, Bitcoin is volatile, enabling investors to make money on both the upside and the downside.
REX Shares has released two funds that offer the opportunity to do exactly that. REX Shares recently filed with the Securities and Exchange Commission for a new 2x-leveraged MicroStrategy ETF, the T-Rex 2X Long MSTR Daily Target ETF, which will track the daily performance of MicroStrategy Inc. (NASDAQ: MSTR) multiplied by 200%. There is also the T Rex 2X Inverse MSTR Daily Target ETF which seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite) of the daily performance of MSTR. With these two ETFs, bears and bulls can get in on the Bitcoin ride both up and down.
It’s worth noting that the fund isn’t suitable for all investors; it’s designed to be used only by knowledgeable investors who are able to understand the possible consequences of seeking daily inverse (-2.0X) investment results and the risks associated with the use of shorting, and who are willing to monitor their portfolios frequently. The fund isn’t intended for, nor appropriate for, investors who won’t be actively monitoring and managing their portfolios. For periods longer than a single day, the fund will lose money if the Reference Assets’ performance is flat, and it is possible that the fund will lose money even if the Reference Assets’ performance decreases over a period longer than a single day. An investor could lose the full principal value of their investment within a single day if the price of the Reference Assets goes up by more than 50% in one trading day. The fund only intends to use reference assets that are traded on a U.S. regulated exchange.
MicroStrategy’s Large Bitcoin Exposure
So why MicroStrategy? The software company happens to be an early and big holder of Bitcoin. It currently owns 226,500 BTC – valued at nearly $13 billion – and is in the market for more. Earlier this month, MicroStrategy announced a plan to issue $700 million in notes due in 2028 to purchase additional Bitcoin. Given its heavy exposure to Bitcoin, MicroStrategy is known for its volatility, which many leveraged traders see as a positive. As of September, MicroStrategy’s 30-day implied future volatility was at a mean of 0.8466. The volatility can be so high with MicroStrategy that Bloomberg ETF analyst Eric Balchunas said on X that the new funds will be the most volatile ETFs ever in the United States, calling it the "ghost pepper of ETF hot sauce."
Seek to boost your Bitcoin returns with leveraged ETFs from REX Shares.
REX Shares says that investing in a MicroStrategy leveraged ETF can offer a distinct way to gain amplified exposure to both MicroStrategy’s core business and its Bitcoin holdings. Compared to a regular Bitcoin ETF, a leveraged ETF provides magnified daily returns (2x or -2x) on MicroStrategy's stock, which often correlates with Bitcoin’s price. This, the company argues, can make it appealing to investors looking for short-term, high-risk/high-reward opportunities that mirror Bitcoin’s movements but also incorporate the performance of MicroStrategy’s software business, adding another layer of potential upside or downside.
Understanding Leveraged ETFs
Leveraged ETFs are funds that use debt or derivatives to increase the returns of a stock, bond, index or currency. They can generate returns quickly, often more than the tracked index or assets, and can also provide a way for investors to hedge against a stock going up or down. A traditional ETF seeks to match the index it is tracking on a one-to-one ratio by holding the stock in its fund. A leveraged ETF aims to amp up those returns to a two-to-one or three-to-one ratio by using debt or financial derivatives including option contracts to boost the returns on a daily basis. Rex Shares says it believes Bitcoin is perfect for this, given its volatility.
Whether bullish or bearish on Bitcoin, these ETFs may help traders easily engage with the asset’s growth patterns. However, while the leverage can translate to amplified gains, it can also similarly lead to magnified losses. These ETFs are best suited for those who can actively manage the inherent risks of leverage and are looking to capitalize on short-term trends, and daily leveraged ETFs should not be held for a period longer than one day.
So far in 2024, Bitcoin has been volatile, enjoying huge runups and declines. Despite it all, Bitcoin was up 35% year to date as of Sep. 10 and 464% higher over a five-year period. Supply and demand, investor sentiment, government actions and regulations, fraud and media hype closely influence Bitcoin’s performance. All that creates volatility which presents an opportunity for sophisticated investors to make money. That hasn’t been lost on MicroStrategy investors. The stock sports a market cap of about $24 billion and is up over 750% over the past five years.
The Best Of Both Worlds
With T-Rex’s latest ETF, investors can get exposure either way – whether they think Bitcoin prices will decline or rise. They’re not the only ETFs that give T-Rex customers Bitcoin exposure. In July, REX Shares, in collaboration with Tuttle Capital Management launched the T-REX 2X Long Bitcoin Daily Target ETF (BATS: BTCL) and the T-REX 2X Inverse Bitcoin Daily Target ETF (BATS: BTCZ), providing 200% and -200% exposure to Bitcoin’s daily performance.
“Bitcoin’s meteoric rise in 2024 has captured the attention of investors and traders worldwide,” Scott Acheychek, COO of REX Financial, REX Shares parent company, said at the time. "By launching 2X leveraged and inverse Bitcoin ETFs, we’re arming traders with powerful tools to capitalize on Bitcoin’s price swings like never before."
Investor appetite for cryptocurrency-focused investment products has been growing since Bitcoin exchange-traded products designed to track the performance of Bitcoin debuted in January. Since then, spot Bitcoin ETFs have amassed $61 billion in assets under management. REX Shares plans to capitalize on the trend with its Bitcoin-focused leveraged ETFs.
To learn more about the T-Rex MicroStrategy and Bitcoin ETFs, click here.
Featured photo by Joshua Mayo on Unsplash.
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Investing in the Funds is not equivalent to investing directly in the ‘Reference Assets’. The Fund will not invest directly in Bitcoin or directly short Bitcoin. Investment Risks: Investing in the Funds involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Funds. An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about REX Shares. To obtain a Fund’s prospectus and summary prospectus call 844-802-4004. A Fund’s prospectus and summary prospectus should be read carefully before investing. The Fund may enter into swap agreements with a limited number of counterparties. If the underlying security has a dramatic move in price that causes a material decline in the Fund’s NAV over certain stated periods agreed to by the Fund and the counterparty, the terms of a swap agreement between a Fund and its counterparty may permit the counterparty to immediately close out all swap transactions with the Fund. There is a risk that no suitable counterparties will be willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not be able to achieve its leveraged investment objective or may decide to change its leveraged investment objective.Investing in a REX Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The REX Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. For the complete disclosure statement, click HERE. The Fund has a daily investment objective and the Fund’s performance for periods greater than a trading day will be the result of each day’s returns compounded over the period, which is very likely to differ from -200% of the Reference Assets’ performance, before fees and expenses. Compounding affects all investments but has a more significant impact on funds that are inverse and that rebalance daily and becomes more pronounced as volatility and holding periods increase. Derivatives Risk. Derivatives are financial instruments that derive value from the underlying reference asset or assets, such as stocks, bonds, or funds (including ETFs), interest rates or indexes. Investing in derivatives may be considered aggressive and may expose the Fund to greater risks, and may result in larger losses or small gains, than investing directly in the reference assets underlying those derivatives, which may prevent the Fund from achieving its investment objective. Daily Correlation Risk. There is no guarantee that the Fund will achieve a high degree of correlation to MSTR and therefore achieve its daily leveraged investment objective. Industry Concentration Risk. The Fund will be concentrated in the industry to which MicroStrategy Inc. is assigned (i.e., hold more than 25% of its total assets in investments that provide inverse exposure to the industry to which MicroStrategy Inc. is assigned). Bitcoin Risk. While the Fund will not directly invest in digital assets, it will be subject to the risks associated with Bitcoin by virtue of its investments in options contracts that reference MSTR. Fixed Income Securities Risk. When the Fund invests in fixed income securities, the value of your investment in the Fund will fluctuate with changes in interest rates. Liquidity Risk. Holdings of the Fund may be difficult to buy or sell or may be illiquid, particularly during times of market turmoil. Non-Diversification Risk. The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended. New Fund Risk. As of the date of this prospectus, the Fund has no operating history and currently has fewer assets than larger funds. Distributor: Foreside Fund Services, LLC, member FINRA, not affiliated with REX Shares or the Funds’ investment advisor
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