Bitcoin Proxy MicroStrategy Could Experience Increased Price Volatility Due to Leveraged ETFs
Investors looking for amplified exposure to Bitcoin’s price movement could soon have access to new traditional finance products, as the T-Rex Group recently filed for MicroStrategy ETFs. The company, known for offering leveraged funds for tech giants like Tesla and Nvidia, has set its sights on the Bitcoin-hungry software firm. T-Rex has applied for two ETFs, one providing 2x long performance on MicroStrategy’s stock and a corresponding inverse option, as per filings with the U.S. Securities and Exchange Commission.
Bloomberg ETF analyst Eric Balchunas highlighted the potential volatility of these proposed ETFs, comparing them to the spiciest end of the scoville scale used to measure chili strength. He described them as “the ghost pepper of ETF hot sauce,” suggesting they could be among the most volatile ETFs ever seen in the U.S.
MicroStrategy’s approach to Bitcoin involves using debt and equity to acquire more of the asset, making it a leveraged play on Bitcoin itself. By issuing $700 million worth of unsecured senior convertible notes earlier this month, the company increased its Bitcoin holdings to 226,331 BTC, valued at about $13.8 billion. This move solidified MicroStrategy’s position as one of the largest corporate holders of Bitcoin.
Spot Bitcoin ETFs have been compared to hot sauce by Balchunas, who believes they offer a manageable level of exposure for most investors. MicroStrategy has experienced significant price swings, with its stock price surging 109% to $1,433 this year, boosted by the approval of spot Bitcoin ETFs in January. Previously, MicroStrategy was considered a popular proxy bet for Bitcoin on Wall Street.
Despite its success, MicroStrategy faced challenges, including a 25% single-day drawdown in May 2022 amid market volatility. However, the company’s strategic approach to Bitcoin has paid off, positioning it as a significant player in the digital asset space.
In conclusion, the filing of MicroStrategy ETFs by the T-Rex Group signals a new chapter in the intersection of traditional finance and the crypto world, offering investors innovative ways to gain exposure to Bitcoin’s price movements.
