The instrument could offer more leveraged exposure to Bitcoin, especially for institutional investors looking to diversify their holdings.
US SEC approves first MicroStrategy ETF: how it works and what’s new
The recent approval by the Securities and Exchange Commission of United States (SEC) of the first ETF MicroStrategy’s long-focused leveraged fund marks a significant advance in the cryptocurrency-linked exchange-traded fund space.
This ETF will allow institutional investors to capture movements in the price of MicroStrategy (MSTR) shares with an amplified effect, thanks to a leverage of 1.75x. Although it is not an ETF directly linked to the price of Bitcoin, MicroStrategy’s relationship with this cryptocurrency gives it an implicit connection.
The company, under the direction of Michael Saylor, has adopted Bitcoin as a safe haven asset, creating a high correlation between its stocks and the price of the cryptocurrency. This leverage allows investors to experience almost doubled stock price movements, which can be attractive to those seeking greater volatility and return potential, although it also carries considerable risk.
For example, if the ETF is leveraged at 2x, and MicroStrategy’s stock price rises by 1%, the ETF will try to rise by 2%. On the other hand, if the stock price falls by 1%, the ETF might fall by 2%. Leverage can increase potential gains, but it also increases risk and potential losses.
The SEC and its relationship with cryptocurrencies
This development highlights the growing interest in Bitcoin as an asset within traditional financial markets. The SEC’s decision also reflects an openness towards more innovative and higher-risk financial products, marking a step towards the integration of cryptocurrencies into mainstream financial markets. Furthermore, with the recent approval of Bitcoin and Ether (ETH) spot ETFs, this move underlines the trend of acceptance and legitimization of cryptocurrencies in the global financial arena.
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Eric Balchunas, a hedge fund specialist at Bloomberg Intelligence, suggests that the 1.75x leverage was chosen to mitigate the risk associated with the high volatility of MicroStrategy shares.
This strategy also highlights MicroStrategy’s influence on the perception of cryptocurrencies as valid assets and its impact on other companies, such as Metaplanet in Japan, which has already accumulated more than 300 BTC.
Source: Ambito
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