Bitcoin News Update: 80% Drop in Leveraged ETFs Highlights the Escalating Dangers of Volatility
- Strategy's leveraged ETFs (MSTX, MSTU) fell over 80% in 2025, erasing $1.5B as Bitcoin and stock prices crashed. - Bitcoin dropped 30% to $85K; Strategy's $1.44B reserve aims to prevent forced Bitcoin sales amid valuation risks. - Analysts warn of compounding losses in volatile markets, with leveraged ETFs amplifying daily losses. - Despite challenges, Strategy remains optimistic on long-term Bitcoin strategy as crypto markets show tentative recovery.
Leveraged Bitcoin ETFs Suffer Steep Losses Amid Market Downturn
Retail investors have been hit hard as leveraged exchange-traded funds (ETFs) linked to Strategy Inc. have experienced dramatic declines. Serving as a key vehicle for Bitcoin exposure, Strategy’s stock has plummeted over 66% from its recent peak, causing significant losses for those invested in related ETFs.
The most prominent leveraged ETFs, MSTX and MSTU—which aim to deliver twice the daily return of Strategy’s shares—have each shed more than 80% of their value in 2025, placing them among the worst performers in the U.S. ETF market. Another fund, MSTP, which debuted during the crypto surge in June, has also struggled. Together, these funds have seen their assets shrink by $1.5 billion since October, with total holdings dropping from $2.3 billion to just $830 million.
Crypto Market Volatility Takes Its Toll
This sharp decline comes in the wake of a broader selloff in the cryptocurrency market. Bitcoin itself has fallen over 30% from its October highs, now trading near $85,000. Strategy, which holds a massive 650,000 Bitcoin, has seen its stock price mirror these wild swings. CEO Phong Le has highlighted the company’s ability to raise funds through both equity and debt to continue its Bitcoin accumulation, but the recent downturn has put pressure on the company’s financial stability. In response, Strategy has set aside a $1.44 billion reserve to cover 21 months of dividend and interest payments, aiming to reassure investors and avoid having to liquidate Bitcoin holdings.
Risks of Leveraged ETFs in Volatile Markets
The recent performance of these leveraged ETFs underscores the dangers of compounding losses in turbulent markets. Although these funds are designed to double the daily movement of Strategy’s stock, sharp price fluctuations have amplified investor losses. Roxanna Islam, head of sector research at TMX VettaFi, remarked that while leveraged single-stock ETFs can deliver impressive gains during rallies, they can just as quickly wipe out profits when the market turns against them. This effect has been especially harsh for Strategy’s leveraged ETFs, where 2x leverage has magnified daily declines.
Valuation Concerns and Potential Index Exclusion
Strategy’s valuation premium has also eroded, with its market net asset value (mNAV) ratio—comparing enterprise value to Bitcoin holdings—dropping to 1.17. There are concerns that if this ratio falls below 1.0, the company may be forced to sell Bitcoin to meet its obligations. JPMorgan analysts have cautioned that Strategy could be removed from major indices such as the MSCI USA and Nasdaq 100, which could trigger billions of dollars in passive fund outflows.
Looking Ahead: Optimism Amid Uncertainty
Despite these challenges, Strategy’s management remains confident in their long-term approach to Bitcoin. CEO Phong Le continues to stress the company’s commitment to its Bitcoin strategy. Meanwhile, the broader cryptocurrency market has shown some signs of recovery, with Bitcoin recently climbing back above $90,000 following a week of positive ETF inflows. Still, the outlook remains uncertain as leveraged ETFs and speculative retail trading face increased scrutiny in an evolving regulatory environment.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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