Leveraged ETFs crash 50% as Strategy’s BTC bet faces pressure

• Strategy’s stock and leveraged ETFs plunged amid Bitcoin’s correction and Trump’s tariff announcement.
• The firm’s “21/21 Plan” aims to secure $42 billion in Bitcoin investments.

The broader market took a hit following Donald Trump’s confirmation of new tariffs, and Strategy (formerly MicroStrategy) was no exception.

Strategy’s stock takes a hit

The company’s stock has declined by roughly 16% year-to-date, mirroring Bitcoin’s [BTC] ongoing correction.

As a major corporate Bitcoin holder, Strategy currently holds approximately 499,096 BTC, valued at $43.7 billion.

However, with an average acquisition cost of $66,350 per Bitcoin, the company now faces mounting pressure as BTC struggles to regain momentum.

The latest downturn has raised questions about the resilience of institutional Bitcoin investments and whether Strategy’s aggressive accumulation strategy will pay off in the long run.

Remarking on this, The Kobeissi Letter, a market analysis firm noted, 

Leveraged ETFs too face the brunt

The sharp downturn has sent shockwaves through leveraged ETFs tied to Strategy. Both MSTX and MTSU plunged nearly 50% over the past five days.

These ETFs, which traded above $43 and $9 per share last week, respectively, saw significant declines as trading volumes surged.

At the time of writing, MSTX had dropped to $23.83 per share, while MTSU fell to $4.94, according to Yahoo Finance.

Leveraged ETFs, designed to amplify returns through derivatives and borrowed capital, present higher profit potential but also come with increased risk, especially during market turbulence.

Geoffrey Kendrick, Standard Chartered’s Global Head of Digital Assets Research, noted that the current downturn aligns with a broader risk-off sentiment across traditional financial markets. This increases volatility in the crypto market.

Strategy’s Bitcoin plan

Since 2020, Strategy has aggressively accumulated Bitcoin, spending over $33 billion to acquire BTC at an average cost of approximately $66,000 per coin.

This strategic investment has resulted in an unrealized profit exceeding $10 billion, according to MSTR Tracker data.

The company has primarily funded these purchases through a combination of stock issuance and $9.5 billion in convertible debt. Nearly all obligations mature in 2027 or later.

This long-term debt structure significantly mitigates the risk of a forced Bitcoin liquidation during short-term price dips, according to The Kobeissi Letter, providing Strategy with a strong financial cushion amid market volatility.

“For this to happen, Bitcoin would need to fall well over 50% from current levels and remain there” until 2027 and beyond, they said. 

Signs of hope

As the market shows signs of recovery, Strategy’s stock price may also rebound in the coming days.

On the 23rd of February, Michael Saylor hinted at potential Bitcoin acquisitions by sharing a BTC tracker on X (formerly Twitter), a move that has historically preceded major purchases.

This cryptic post has sparked speculation that recent Bitcoin transactions are yet to be reflected in Strategy’s holdings.