The crypto slump of 2025 has dealt a severe blow to leveraged exchange-traded funds (ETFs) linked to Strategy, a company that has become synonymous with bitcoin hoarding. This year's downturn in the cryptocurrency market has left its mark, with the value of these ETFs plummeting by a staggering 85%.
The Crypto Conundrum: When Bitcoin Falls, So Do the ETFs
The T-Rex 2X Long MSTR Daily Target ETF and Defiance Daily Target 2x Long MSTR ETF, designed to provide double the returns on Strategy's shares, have witnessed a dramatic decline in their value. Meanwhile, the T-Rex 2X Inverse MSTR Daily Target ETF has also taken a hit, shedding 48% of its value during the same period. This downturn can be attributed to the falling price of bitcoin, which has sent shockwaves through the market.
Strategy's shares have mirrored this decline, tumbling by over 40% in 2025. The latest drop was triggered by bitcoin's slide below $90,000, a significant drop from its record high of $126,223.18 in October. This decline can be attributed to a global shift towards risk aversion.
The Buy-and-Hold Strategy: A Pioneer's Plight
Michael Saylor's Strategy, a pioneer in the buy-and-hold crypto treasury strategy, has inspired numerous copycats. However, the shares of these companies have also lagged substantially this year. Investors are now focusing on Strategy's "mNAV" metric, which represents its enterprise value relative to its bitcoin holdings. CEO Phong Le's recent remarks on the "What Bitcoin Did" podcast have raised concerns, suggesting that the company may consider selling bitcoins if the ratio drops below 1.
Mike O'Rourke, chief market strategist at JonesTrading, believes that Le Phong's comments undermine the company's core marketing message of holding onto bitcoin despite volatile market conditions. Strategy has not yet responded to requests for comment.
Earnings Take a Hit, Short Sellers Rejoice
On Monday, Strategy slashed its full-year outlook, predicting a profit range between $6.3 billion and a $5.5 billion loss, a significant departure from its previous forecast of $24 billion in net profit. This earlier estimate was based on the assumption that bitcoin would reach $150,000 by the end of the year, a projection that has not materialized.
Vincenzo Vedda, chief investment officer at DWS, commented on the situation, saying, "Great strategy when prices are high, but when they fall, the options for the company become limited." Strategy has also disclosed a $1.44 billion reserve to cover dividends on preferred stock and interest on outstanding debt.
Short sellers have capitalized on this downturn, reaping more than $2.5 billion in profits on the stock so far this year, with a significant portion of that profit coming on Monday alone. According to analytics firm Ortex, short sellers have made approximately $156 million on Monday.
A Year of Decline
Strategy's shares have taken a significant hit since joining the Nasdaq 100 index in 2024. In the past year, the shares have more than halved, sliding approximately 70% from their peak in November 2024.
Analysts' Take: Optimism Persists
Despite the dismal performance, analysts have remained largely optimistic. Out of the 16 brokerages covering Strategy, 10 rate it as a "buy" equivalent, four as a "strong buy", and only two as a "hold." The median price target, according to LSEG data, is $485, implying a substantial 183% jump over the next 12 months.
Michael Saylor is set to deliver a keynote address titled "The Undeniable Case for Bitcoin" at a Binance conference in Dubai on Wednesday. This event will provide an opportunity for further insights into the future of bitcoin and its impact on the market.
The Future of Strategy: A Controversial Turn?
And here's where it gets interesting: With Strategy's earnings taking a hit and short sellers gaining, the company's future direction becomes a topic of debate. Will Strategy stick to its buy-and-hold strategy, or will it consider selling its bitcoins to navigate the volatile market? This decision could spark differing opinions among investors and market enthusiasts. What do you think? Should Strategy hold onto its bitcoins or explore alternative strategies? Share your thoughts in the comments below!
