Defiance Daily Target 2X Long MSTR ETF (MSTX), a leveraged ETF tied to MicroStrategy's stock, plummeted 5.71% during intraday trading on Thursday. This sharp drop is likely amplified by the daily rebalancing flows of leveraged ETFs linked to MicroStrategy (MSTR), which have fueled record inflows and increased volatility in the company's stock.
According to a JPMorgan analyst, the leveraged MicroStrategy ETFs, including MSTX and MSTU, have become popular among retail investors seeking amplified exposure to Bitcoin through MicroStrategy's stock. These ETFs are designed to offer leveraged exposure to MicroStrategy, which holds a significant amount of Bitcoin on its balance sheet.
The analyst notes that the daily rebalancing of these ETFs magnifies volatility in MicroStrategy's stock, particularly during end-of-day trading. In November, there were instances where rebalancing flows exceeded $2 billion in a single day, contributing to MicroStrategy's near 60% surge during the month. These "price-insensitive" flows exacerbate market moves, potentially contributing to the 5.71% plummet in MSTX observed during intraday trading.
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