MicroStrategy ETF (MSTU) Gains 225% in Six Months: Is It Sustainable?

MicroStrategy’s leveraged ETF, MSTU, has been a hot ticket, up over 225% in 6 months since launch.

The fund, which 2x’s MicroStrategy’s stock (MSTR), has been trading over $500 million a day and is in the top 1% of ETFs by volume. With over $1 billion in AUM, MSTU has surpassed the original 1.75x MSTR ETF, showing high demand from high risk investors.

Bloomberg ETF Strategist Eric Balchunas said MSTU’s 6 month return is 57,000% annualized, unprecedented in the ETF world. Balchunas called MSTU a “4x Bitcoin ETF” because of its volatility – 168% over 30 days vs. 41% for BlackRock’s IBIT Bitcoin ETF. This leverage allows MSTU to get exposure to Bitcoin’s price moves that would otherwise be restricted by US regulations on Bitcoin ETFs.

MicroStrategy Stock Surges Alongside ETF Performance

MSTU’s performance is closely tied to the recent run in MicroStrategy’s stock, MSTR, which is up 51% in the last 30 days and hit an all time high of $255. This follows a 10:1 stock split in August that made the stock more accessible to investors and increased trading volume and interest. Since going all in on Bitcoin in 2020, MSTR is up 1,500% and is now a popular way to get exposure to Bitcoin.

Over the last few years MicroStrategy has been using its cash to buy Bitcoin and has amassed a $14 billion Bitcoin reserve. The company, led by executive chairman Michael Saylor, has more Bitcoin than any other corporation. Saylor has been advocating for Bitcoin as a strategic asset and has even suggested Microsoft should do the same to drive long term shareholder value.

MicroStrategy has outperformed big tech companies like NVIDIA in total return, so it’s a high risk high reward asset. But some analysts are warning that MSTR’s recent run up may be overvaluation, especially since the stock is now worth more than almost all gold mining companies and produces almost no operating profits.

Potential Overvaluation Risks and Future Outlook

As MSTR hit an all time high on October 28 and went up 8.96% in one day, market watchers are getting concerned. Economist Peter Schiff compared MicroStrategy to gold mining companies, pointing out that despite producing no physical product, MicroStrategy’s valuation is higher than all gold miners except Newmont. This is a classic sign of speculation, MSTR is a stock that’s valued on Bitcoin’s price appreciation not traditional earnings growth.

Mads Eberhardt, an analyst at Steno Research, advises investors to be cautious, saying while MSTR has been good to investors, the more Bitcoin ETFs become available the less relevant MSTR will be as a Bitcoin proxy. If spot Bitcoin ETFs keep opening up, investors will prefer those over holding MSTR stock and that will reduce demand for MSTR.

• Key Points to Consider:

  • MSTU’s rapid rise underscores high risk and volatility.

  • MicroStrategy holds the largest corporate Bitcoin stash, amplifying exposure.

  • Future Bitcoin ETF options may shift investor preference away from MSTR.

MSTU and MSTR will be driven by Bitcoin’s price and cryptocurrency ETF regulatory developments. If you’re a short term investor MSTU is a growth opportunity. If you’re a long term Bitcoin investor you need to consider the risks and options.