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Leveraged ETFs Crash 50% as Strategy’s BTC Bet Faces Pressure
Strategy, a company formerly known as MicroStrategy, has seen its stock plummet by around 16% amid the recent Bitcoin correction. Unfortunately, this downturn has had a ripple effect on its leveraged exchange-traded funds (ETFs), which have taken an astonishing 50% hit over the past five days.
MSTX and MTSU, two ETFs tied to Strategy’s Bitcoin bet, have seen their shares drop significantly in value. At the time of writing, MSTX had plummeted to $23.83 per share, while MTSU fell to $4.94. These losses are particularly concerning as these leveraged ETFs were designed to amplify returns through derivatives and borrowed capital.
Industry experts like Geoffrey Kendrick, Standard Chartered’s Global Head of Digital Assets Research, note that the current downturn in cryptocurrency markets aligns with a broader risk-off sentiment across traditional financial markets. This increase in volatility has led many to re-evaluate their investment strategies.
Strategy’s Aggressive Bitcoin Accumulation Plan
Strategy has taken an unconventional approach by aggressively accumulating Bitcoin since 2020. With over $33 billion spent on BTC, this decision has yielded an unrealized profit of more than $10 billion. The company has primarily funded these purchases through a combination of stock issuance and a massive convertible debt of $9.5 billion. It’s worth noting that nearly all obligations mature in 2027 or later.
Strategy’s Long-Term Debt Structure Provides Cushion
Interestingly, Strategy’s use of long-term debt significantly reduces the risk of forced Bitcoin liquidation due to short-term price drops. According to The Kobeissi Letter, a market analysis firm, Strategy would need to see a catastrophic downturn of over 50% for it to be forced into selling its holdings.
Hopes of Recovery
As the crypto market shows signs of recovery, some have speculated that Strategy’s stock price may rebound in the coming days. Michael Saylor, Strategy’s CEO, recently hinted at potential Bitcoin purchases by sharing a BTC tracker on X (formerly Twitter). This cryptic post has sparked speculation about pending transactions that are yet to be reflected in Strategy’s holdings.
While this downturn is undoubtedly concerning for investors and strategists alike, it remains to be seen whether Strategy will emerge from this crisis stronger or not.
Source: https://ambcrypto.com/leveraged-etfs-crash-50-as-strategys-btc-bet-faces-pressure/
