[Exclusive] Michael Saylor's MSTR-Linked ETFs Are 'Not For Long-Term Investors' Say Crypto Experts: '…They Also Double The Potential Loss'

Cryptocurrency experts have warned against the use of double-leveraged Bitcoin BTC/USD exchange-traded funds, emphasizing that these are designed for short-term trading strategies due to their daily rebalancing and inherent volatility. While the long-term investors risk significant losses.

What Happened: The double-leveraged ETFs tracking Strategy Inc. MSTR, formerly MicroStrategy, have raised concerns among cryptocurrency experts. The firm now known as just ‘Strategy’ is a Michael Saylor-led company heavily invested in Bitcoin.

While these ETFs, like T-Rex 2X Long MSTR Daily Target ETF MSTU launched in September, and Defiance Daily Target 2x Long MSTR ETF MSTX launched in August, promise amplified daily returns, experts warn they are unsuitable for long-term investment strategies.

“Leveraged ETFs such as MSTU and MSTX offer multiples of the daily performance of the underlying stock, MicroStrategy Inc,” Srinivas L, MD & CEO of 9Point Capital, told Benzinga.

“While the ETFs aim to double the daily return, they also double the potential loss. With the inherent volatility of Bitcoin, the doubling can lead to wild fluctuations in value.”

A key concern highlighted by experts is the impact of daily rebalancing, a mechanism inherent in leveraged ETFs.

“They're designed for short-term strategies, not long-term holding, as daily rebalancing can erode returns over time, especially in volatile markets,” says Thangapandi, CEO and Founder of Koinpark.

This daily rebalancing can lead to a phenomenon known as “value decay,” where the ETF’s long-term performance deviates significantly from the expected multiple of the underlying asset’s cumulative return, explains Srinivas L.

Sathvik Vishwanath, Co-founder and CEO of Unocoin, reinforces this point, stating, “Leveraged plays on BTC, or in this case, BTC-exposed companies like Strategy, are inherently high-risk.” These are best suited for “experienced traders rather than long-term investors.”

He emphasizes that these ETFs are designed for short-term trading and not holding and that their long-term returns often don’t match expected multiples, “due to daily rebalancing.”

Why It Matters: MSTU and MSTX have shown significant tracking errors in the past, likely due to the company’s volatile swaps and options exposure.

These ETFs have on occasion deviated substantially from their intended 2x daily performance, as seen during the price swings in November 2024. It has exceeded or fallen short of expected movements based on Strategy’s stock price. These swings pose an increased risk for investors.

Strategy is the only publicly listed company holding the highest Bitcoin reserves, representing 2.28% of the total 21 million supply. According to BiTBO, MSTR held 478,740 coins, valued at $45.971 billion, as of Feb. 12, 2025.

Price Action: Strategy rose by 2.30% to $326.82 apiece on Wednesday and advanced further by 0.44% in after-hours. The exchange-traded fund tracking the Nasdaq 100 index, Invesco QQQ Trust, Series 1 QQQ rose by 0.059%.

MSTR shares have gained 8.94% on a year-to-date basis, whereas it was down by 376.41% over the last year.

The average price target among 14 analysts tracked by Benzinga is $494.93 with a ‘Buy' rating. The estimates range from $140 to $690 apiece. Recent ratings from Barclays, Keefe, Bruyette & Woods, and Maxim Group suggest a $493.67 target, implying a potential upside of 50.39%.