CandleFocus

How MicroStrategy hype exposes overlooked flaws in US ETFs

Author: Content Editor
MicroStrategy's influence as a major Bitcoin holder has exposed weaknesses in the $15 trillion exchange-traded fund (ETF) market. Two leveraged funds tied to MicroStrategy's stock, designed to provide double the daily returns, have been delivering unexpected results in recent weeks. The funds, MSTU and MSTX, have seen significant deviations from expected performance, due in part to their size. The funds have become too big for prime brokers to keep up with, causing a shortage of swaps, which are used to track MicroStrategy's stock. The funds have resorted to using call options instead, but critics argue that options are unpredictable for a volatile stock like MicroStrategy. The situation is compared to past ETF disasters and raises concerns about hidden flaws in rapidly growing funds. The Securities and Exchange Commission discourages ETFs from closing to new investors, but it is suggested that stopping new unit creations could solve the problem in this case, potentially turning the ETFs into closed-end funds.

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