MicroStrategy ETFs Face Significant Tracking Errors

The rapid rise of the iShares Bitcoin Trust ETF has attracted significant investments from billionaires, making it the fastest-growing ETF in history, with $40 billion in assets under management within 211 days. Concurrently, MicroStrategy's aggressive Bitcoin acquisition strategy has resulted in operational challenges for its associated leveraged ETFs, MSTU and MSTX, which have experienced significant tracking errors, failing to align with MicroStrategy's stock performance as intended. Tracking discrepancies emerged after mid-November, with notable declines in MSTU and MSTX that exceeded expected outcomes based on MicroStrategy's performance. The surge in assets for these ETFs has led to a shortage of total return swaps, critical for accurate tracking, pushing the funds to rely on less effective call options. Analysts suggest that these issues reflect not inherent flaws in ETFs but rather the unique circumstances surrounding MicroStrategy's market position. The situation highlights the risks associated with investing in leveraged ETFs within a volatile cryptocurrency landscape.