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Leveraged Strategy Inc. ETFs plunge as retail pain mounts, index risk grows
A sharp drawdown in Strategy Inc.’s shares has torpedoed the leveraged ETFs tied to it, erasing most of year-to-date gains for retail traders and raising fresh questions about funding, index inclusion, and the risk of forced BTC sales if pressure persists.
Strategy Inc. stock down 60%+ from recent highs
Leveraged ETFs MSTX, MSTU, MSTP are down ~80% YTD; ~$1.5B AUM outflows since early October
Company sets up ~$1.4B reserve to cover dividends and interest for ~21 months
mNAV premium has compressed toward warning zone; forced BTC sales risk if it slips below 1.0
Index removal risk flagged; passive outflows would amplify volatility
Retail favorite turns into a drawdown machine
The crypto selloff has flipped one of the market’s most popular proxy trades on its head. Shares of Strategy Inc.—a corporate vehicle with substantial BTC on the balance sheet—have fallen more than 60% from recent peaks, converting earlier momentum into steep losses for newcomers who chased the run-up.
Source: Bitcointreasuries
The pressure reflects a double hit: BTC is down roughly 30% from its October highs, and the equity’s volatility magnifies every leg lower.
Source: Bloomberg
Into the weakness, the company announced a ~$1.4 billion cash reserve to cover dividend and interest obligations, aiming to reduce concern that further BTC price declines could force asset sales. As well Strtegy bought yesterday 130 BTC with $12M to reach its treasury to 650k BTC.
Source: Bitbo
Leveraged wrappers magnify the damage
Single-stock, 2x-levered ETFs tracking Strategy Inc. (tickers MSTX, MSTU) have each fallen more than 80% this year. A third fund, MSTP, launched in June, has dropped by a similar magnitude since inception. Combined assets across the trio have shrunk from just over $2.3 billion in early October to about $830 million, implying roughly $1.5 billion of net outflows as performance and sentiment deteriorated.
These vehicles are designed to target double the daily move of the underlying stock. In choppy markets, compounding and volatility decay can erode returns even if the share price eventually retraces—turning short bursts of turbulence into lasting damage.
mNAV premium compresses toward the line in the sand
A key valuation yardstick for Strategy Inc. is “mNAV,” or market net asset value—the ratio of enterprise value to the market value of BTC holdings. Management has previously indicated that a reading near 1.0 is a warning level because it tightens funding flexibility. Recent market stress has squeezed the premium toward ~1.15. A decisive break below 1.0 would raise the probability—by the company’s own framework—of BTC sales to meet obligations, albeit as a last resort.
The newly disclosed reserve, funded by recent equity activity, covers at least 21 months of dividends and interest. While this helps near-term liquidity optics, it does not eliminate questions about long-run funding costs, dilution risk from additional capital raises, or sensitivity to BTC drawdowns.
Index status now in focus
With performance and market cap under pressure, Strategy Inc.’s place in major benchmarks has come under review watch. Potential removal from widely tracked indices (e.g., MSCI USA, Nasdaq 100) would force passive sellers and could deepen volatility around rebalancing dates. For a stock once floated as an S&P 500 candidate, the swing is notable.
What to watch next
BTC trajectory: further downside would keep mNAV compressed and test the reserve’s reassuring effect.
Flows and liquidity: ETF redemptions, single-name borrow costs, and options skew for signs of stress.
Funding mix: pace and pricing of any new equity, preferred, or convertible issuance.
Index reviews: calendar checkpoints for rebalances and any preliminary announcements.
The Strategy Inc. complex—equity and leveraged ETFs—has shifted from momentum trade to stress test. Without stabilization in BTC and a rebuilding of the valuation premium, retail-heavy products remain exposed to further drawdowns, amplified by leverage and potential index-driven flows.
