New ETF Targets Convertible Bonds Of Bitcoin-Holding Companies Like Strategy

A recently launched exchange-traded fund, named the REX Bitcoin Corporate Treasury Convertible Bond ETF BMAX, began trading on Friday, focusing on convertible bonds issued by firms that hold Bitcoin BTC/USD on their balance sheets, such as Strategy MSTR, previously known as MicroStrategy.

Managed by REX Financial, this fund targets companies that have adopted the practice of issuing equity-linked notes to finance their cryptocurrency investments, a strategy led by Strategy under its executive chairman, Michael Saylor, Bloomberg reported.

These convertible bonds start as low-interest debt but can transform into company stock if share prices reach a certain threshold, offering investors both interest income and potential equity gains.

Strategy has issued nearly $9 billion in convertible bonds in recent years, amassing a Bitcoin portfolio valued at around $40 billion, which forms a significant portion of the $60 billion held by over 70 publicly traded companies, according to data from Bitwise.

Other firms like MARA Holdings, Riot and Bitdeer Technologies Group have also issued billions in convertible bonds over the past four months, expanding their presence in the U.S. convertibles market.

"Individual investors have struggled to access these bonds until now, and BMAX changes that," said Greg King, REX Financial's CEO, noting the fund's aim to open this market to retail traders during a period of market unease driven by trade-war concerns.

Also Read: Trump Administration Signals Aggressive Cost-Neutral Bitcoin Accumulation Strategy

Bitwise recently launched a separate fund tracking an index of companies with Bitcoin in their treasuries, where Strategy accounts for nearly a quarter of the holdings.

Convertible bonds, often utilized by institutional investors and hedge funds for arbitrage strategies, carry risks if issuers face financial difficulties with interest or principal payments.

The ETF market already includes at least seven convertible-bond funds, such as the $4 billion SPDR Bloomberg Convertible Securities ETF CWB, which has been active since 2009, with most funds holding some exposure to Strategy.

Additionally, leveraged funds like MSTX and MSTU, which aim to deliver twice the daily return of Strategy's stock, have drawn $4 billion in investments since their launches in August and September 2024, showing strong investor interest despite Strategy's recent price drops.

Athanasios Psarofagis, an analyst at Bloomberg Intelligence, commented on the interconnected financial products tied to Strategy, saying, "A growing network of ETFs is emerging around Strategy, which supports its ongoing relevance in the market."

He added that a decline in Strategy's stock could impact this network, including funds designed to deliver double the inverse return of the stock, reflecting the risks of this interconnected system.

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