Back in 2022, the SEC approved the launch of ETFs on individual stocks. At first glance, the idea of creating a fund that will own a single stock looks absurd. However, the idea behind creating ETFs on individual stocks is to provide investors with access to leverage. Such funds reflect the predetermined percentage of the stock’s daily performance. Margin lending, which is used to increase exposure to an asset, costs money. At times of high interest rates, the margin is expensive. The leveraged ETF performs the function of margin lending and provides investors with an opportunity to get more profits. Not surprisingly, the first leveraged ETFs provided access to popular stocks like Apple, Microsoft, Tesla, and NVIDIA. Recently, the SEC approved the first leveraged MicroStrategy ETF. MicroStrategy is managed by Michael Saylor, a prominent Bitcoin proponent. The company’s core business is hardly interesting to anyone as investors focus on the company’s strategy — regular purchases of Bitcoin. Thus, MicroStrategy’s investors buy the company’s shares to get exposure to Bitcoin. While the launch of spot Bitcoin ETFs made it easy to invest in BTC on traditional exchanges, MSTR stock remains a popular vehicle among crypto-oriented investors. The new fund, which received the ticker MSTX, aims to deliver 175% of MicroStrategy’s stock daily performance. At first glance, this opportunity looks tempting to those who want to bet on the growth of BTC price. However, leveraged ETFs have one major issue, which is decay. The key problem is that leveraged ETFs aim to show the results of a percentage of the daily movement of an asset. As a result, the fund’s losses increase on days when the asset’s price falls. The greater the volatility, the worse the result of a leveraged ETF over time. Decay makes leveraged ETFs a complete disaster for long-term holders. Many investors learned this the hard way. For example, the ProShares UltraPro S&P 500 ETF (UPRO) has just moved above 2022 highs, when the index itself is well above those levels. Certainly, this is not what investors expect from a product that promises to boost exposure to an asset. Such disappointing results occur due to decay. If the asset’s price starts to fall soon after the launch of a leveraged ETF, the results will be even worse. Put simply, if you want to buy Bitcoin, buy real crypto rather than any form of derivatives. Leveraged ETFs are completely unsuitable for long-term holding, and MSTX would not be excluded from this rule. The target audience of leveraged ETFs is short-term speculators who want to boost their results without paying a margin to their broker. It should be noted that leverage is a double-edged sword, so potential losses would be also multiplied in case the trade goes the wrong way. Should we expect that leveraged ETFs on crypto would be launched soon? Most likely, the SEC would be cautious, so such products would not be approved in the near term. Anyway, true crypto fans should stick to real crypto and ignore products that are not suitable for long-term holding. Back in 2022, the SEC approved the launch of ETFs on individual stocks. At first glance, the idea of creating a fund that will own a single stock looks absurd. However, the idea behind creating ETFs on individual stocks is to provide investors with access to leverage. Such funds reflect the predetermined percentage of the stock’s daily performance. Margin lending, which is used to increase exposure to an asset, costs money. At times of high interest rates, the margin is expensive. The leveraged ETF performs the function of margin lending and provides investors with an opportunity to get more profits. Not surprisingly, the first leveraged ETFs provided access to popular stocks like Apple, Microsoft, Tesla, and NVIDIA. Recently, the SEC approved the first leveraged MicroStrategy ETF. approved approved MicroStrategy is managed by Michael Saylor, a prominent Bitcoin proponent. The company’s core business is hardly interesting to anyone as investors focus on the company’s strategy — regular purchases of Bitcoin. Thus, MicroStrategy’s investors buy the company’s shares to get exposure to Bitcoin. While the launch of spot Bitcoin ETFs made it easy to invest in BTC on traditional exchanges, MSTR stock remains a popular vehicle among crypto-oriented investors. The new fund, which received the ticker MSTX, aims to deliver 175% of MicroStrategy’s stock daily performance. At first glance, this opportunity looks tempting to those who want to bet on the growth of BTC price. However, leveraged ETFs have one major issue, which is decay. The key problem is that leveraged ETFs aim to show the results of a percentage of the daily movement of an asset. As a result, the fund’s losses increase on days when the asset’s price falls. The greater the volatility, the worse the result of a leveraged ETF over time. Decay makes leveraged ETFs a complete disaster for long-term holders. Many investors learned this the hard way. For example, the ProShares UltraPro S&P 500 ETF (UPRO) has just moved above 2022 highs, when the index itself is well above those levels. Certainly, this is not what investors expect from a product that promises to boost exposure to an asset. Such disappointing results occur due to decay. If the asset’s price starts to fall soon after the launch of a leveraged ETF, the results will be even worse. Put simply, if you want to buy Bitcoin, buy real crypto rather than any form of derivatives. Leveraged ETFs are completely unsuitable for long-term holding, and MSTX would not be excluded from this rule. The target audience of leveraged ETFs is short-term speculators who want to boost their results without paying a margin to their broker. It should be noted that leverage is a double-edged sword, so potential losses would be also multiplied in case the trade goes the wrong way. Should we expect that leveraged ETFs on crypto would be launched soon? Most likely, the SEC would be cautious, so such products would not be approved in the near term. Anyway, true crypto fans should stick to real crypto and ignore products that are not suitable for long-term holding.
