The Securities and Exchange Commission (SEC) has received an application for the 2X Long MSTR Daily Target ETF from T-Rex Group, an exchange-traded fund issuer. Analysts believe that this product could potentially become the most volatile ETF in the United States. The fund aims to achieve leveraged investment results that are significantly different from other ETFs. It seeks to magnify the daily performance of MicroStrategy’s publicly-traded common stock by 200%. MicroStrategy is a software analytics company that has transitioned into Bitcoin development and currently holds the title of the largest corporate BTC holder globally. It controls over 226,331 BTC, which is more than 1% of the total network’s supply and the amount held by the U.S. government. Since the introduction of Bitcoin ETFs and the subsequent surge in its value earlier this year, standard MicroStrategy has been likened to a leveraged Bitcoin ETF due to its high volatility. Currently, MSTR has gained 109% year-to-date, surpassing Bitcoin’s 37% increase. However, MSTR also experiences more significant drawdowns than BTC during market corrections. The introduction of a 2X leveraged MSTR ETF would further amplify its volatility by doubling its daily performance. This means that if MSTR rises by 10% in a day, T-Rex’s ETF would surge by 20%. Similarly, if MSTR falls by 10%, T-Rex’s fund would also decline by 20%. The increased volatility of leveraged ETFs tends to be beneficial during periods when MSTR consistently rises, often exceeding twice the stock’s performance. However, downside volatility can be disastrous. If the price of MSTR falls by more than 50% in one trading day, investors could lose their entire investment. Even over longer periods, the fund could lose money if MSTR’s performance remains flat or increases. Bloomberg ETF analyst Eric Balchunas noted that MicroStrategy already has a 3X leveraged ETF trading in Europe, which is currently considered the world’s most volatile ETF. He predicts that T-Rex’s fund will likely be the “ghost pepper of ETF hot sauce” in the United States, with volatility potentially reaching 20 times that of the SPX.
