Retail investors who flocked to Michael Saylor's grand Bitcoin experiment are now paying a heavy price. As cryptocurrencies face a broad sell-off, MicroStrategy Inc. (MSTR.US), once celebrated for packaging crypto assets into public equities, is struggling to calm markets—its shares have plunged over 60% from recent highs. On Monday, MicroStrategy announced a $1.4 billion reserve fund for dividends and interest payments, aiming to ease concerns about forced Bitcoin sales if prices drop further. But for many investors, the damage is already done.
Mainstream leveraged ETFs tracking MicroStrategy’s volatile stock—the 2x Long MSTR ETF-Defiance (MSTX.US) and 2x Long MSTR ETF-T-Rex (MSTU.US), which offer double daily returns—have each plummeted over 80% this year, ranking among the worst-performing of 4,700+ U.S. ETFs, trailing only obscure gold miner and semiconductor short funds. Another fund, the 2x Long MSTR ETF-GraniteShares (MSTP.US), launched during June’s crypto frenzy, has also suffered steep losses since its debut. Combined, these three ETFs have shed roughly $1.5 billion in assets since early October.
Initially, retail money poured into these high-risk products tracking Wall Street’s premier Bitcoin proxy, offered by firms like Defiance and Tuttle Capital Management. But what was seen as a shortcut to amplified crypto gains has become a cautionary tale of leverage, volatility, and worsening sentiment. MicroStrategy shares fell 34% in November, while Bitcoin retreated ~30% from October highs, now hovering near $86,000. On Monday, MicroStrategy closed down 3.25% after a 12% intraday drop.
"Bitcoin’s recent pullback hammered MicroStrategy, and double-leveraged products like MSTX and MSTU magnified those losses," noted Roxanna Islam, head of industry research at ETF firm TMX VettaFi. "This underscores how leveraged single-stock ETFs can shine during rallies but quickly erase gains when the underlying asset reverses." Defiance declined to comment; Tuttle Capital and GraniteShares did not immediately respond.
Market fears center on MicroStrategy’s "market cap-to-net asset value" (mNAV) ratio—comparing its enterprise value to its Bitcoin holdings. The premium has nearly vanished, with the ratio at ~1.17, a level executives previously flagged as risky. CEO Phong Le warned on a podcast that if mNAV falls below 1.0, Bitcoin sales might be needed to meet obligations—a "last resort." The new reserve, funded by recent equity raises, covers 21+ months of payouts but hasn’t stopped the stock’s slide or eased concerns over leverage, retail reliance, and funding pressures.
To sustain Bitcoin purchases, MicroStrategy repeatedly issued common shares, diluting existing holders—a contentious strategy. With its valuation premium fading, it turned to costlier tools like preferred shares. Meanwhile, its ETF ecosystem is unraveling: at least 15 MicroStrategy-linked ETFs trade today, most down double-digits this year. MSTX, MSTU, and MSTP’s combined assets have collapsed from $2.3 billion in early October to ~$830 million.
Despite growing institutional crypto adoption and political backing from the Trump administration, the downturn has battered miners, altcoins, and firms holding large token inventories. Leveraged ETFs, once retail darlings, are among the hardest hit. Designed to double MicroStrategy’s daily moves, their structure backfires in choppy markets. Even if the stock flatlines, "volatility decay" from compounding losses erodes returns. When MicroStrategy swings wildly, these ETFs don’t just track drops—they amplify them.
"Leveraged ETFs are generally dangerous. Doubling down on a stock that itself leverages into speculative assets is layering risk," said Michael O’Rourke, chief market strategist at Jonestrading. Now, MicroStrategy’s place in major indices is at risk. JPMorgan analysts warn it could be booted from benchmarks like the MSCI USA and Nasdaq 100—potentially triggering billions in passive outflows. For a firm once seen as a potential S&P 500 candidate, the reversal is stark.