Defiance ETF Will Bet on MSTR Stocks to Fall

Defiance, a fund issuer with nine ETFs amounting to $1.5 billion, is preparing to launch its first leveraged exchange-traded fund, which will bet on high-priced MicroStrategy Inc.

The company has filed to launch the Defiance 2X Short MSTR ETF, which will double investors' returns when MicroStrategy's stock price falls. MicroStrategy, whose shares have quadrupled in the past year as the artificial intelligence software company turned曏 into one of the largest bitcoin holders, is trying to capitalize on the demand from investors who think the company's shares are going down.

Defiance also filed for a 2x leveraged ethereum futures ETF this week, furthering the trend of leveraged funds.

Leveraged funds are usually aimed at active investors rather than buy-and-hold types of investors. They are designed to capture short-term movements in stocks and are considered high-risk investments that are not suitable for the average investor. Defiance's filing acknowledges that it is "very different from most other exchange-traded funds" by seeking "the Daily 200% Bubbles Investment Results".

It is also "riskier than alternatives that do not utilize a shorting strategy," the document states.

As traders increasingly seek out investment vehicles that they can use to make big bets on volatile and unstable priced stocks like NVIDIA Corporation and Tesla Inc. as well as cryptocurrencies.

Both Bitcoin and Ether are bouncing back from the lows of the 2022 cryptocurrency cryptocurrency season, especially since the spot Bitcoin ETF began trading earlier this year. According to CoinMarketCap, Bitcoin has risen more than 55% so far this year, while Ether has risen 48%.

While MicroStrategy is primarily a software company, its trading model is closely tied to cryptocurrencies, as it is using Bitcoin as its primary reserve asset in 2020 and as of March 18 held more than 200,000 Bitcoins.

"This thing could be 30-40 times more volatile than the S&P 500," Eric Balchunas, Bloomberg's senior ETF analyst, wrote on X. "Stocks should come with a Xanax処方. "

Spot Ether Competition

Defiance's leveraged futures Ether ETF filing comes as the likes of Ark Invest, BlackRock Inc and Fidelity Investments await a decision from the U.S. Securities and Exchange Commission (SEC) on their cash Ether ETF proposal.

The SEC is expected to decide whether to approve or reject the funds in May. However, analysts have lowered their expectations, with Bloomberg analysts lowering the chances of approval from 50% to 25% in their latest assessment, due to the limited contact the agency has had with issuers regarding their applications.

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