MSTY's Dangerously High Yield: Direct Investment In Bitcoin A Better Idea

Summary YieldMax MSTR Option Income ETF has suffered significant declines alongside cryptocurrencies and Strategy Inc. MSTY's dividends have been sharply reduced recently, reflecting falling net asset ￰0￱ MSTY's high current yield, further dividend cuts are likely if NAV continues to ￰1￱ these risks, MSTY is not a compelling investment at this ￰2￱ Thesis Cryptocurrencies have recently hit a rough patch, which has impacted crypto-centric stocks such as Strategy Inc. ( MSTR ), ￰3￱ touted as a safer way to get MSTR exposure, the YieldMax MSTR Option Income Strategy ETF ( MSTY ) has been hit very hard as ￰4￱ worse, dividends have been cut drastically from where they were just a couple of months ago -- with net asset value falling, dividends could decline further going forward, which is why I think that MSTY is not a very compelling investment, despite an arguably very high current ￰5￱ Coverage I have written about the YieldMax MSTR Option Income Strategy ETF here on Seeking Alpha once, in ￰6￱ then, I argued that MSTY was an avoid due to considerable downside risk and that its dividend yield, while very high, was not a reason to buy, including due to the fact that there was significant dividend cut ￰7￱ more than three months having passed since then, it is time to take another look at MSTY -- has the thesis played out so far, and what's relevant for MSTY going forward?

If you're interested in an overview of MSTY, I welcome you to check out the article from last summer I linked above. MSTY's Recent Performance MSTY offers a very high dividend yield and uses MSTR as the underlying for its covered call option ￰8￱ that does not mean that MSTY has a way better return outlook -- the high dividend yield comes at a ￰9￱ can only achieve this high dividend yield by selling covered calls aggressively, which sacrifices the upside potential in the underlying ￰10￱ means that during bull runs, MSTY has a high chance of underperforming MSTR, as we have seen in the ￰11￱ the last couple of months, when MSTR did pull back, MSTY pulled back as well -- in fact, its price dropped even more than that of MSTR, as MSTY's covered call option strategy prevented it from benefiting from temporary upward moves in MSTR, as the following chart shows: Data by YCharts Over the last three months, Strategy saw its shares drop by around 40%, while MSTY dropped by around 50%.

On a total return basis, the performance was better for both, but still extremely bad -- both picks would have generated a loss of more than 30%, with dividends already being accounted ￰12￱ retrospect, a "Sell" rating would have worked even better when I covered MSTY in the summer, but I'm still happy with my conclusion from July that MSTY was a risky pick that investors should ￰13￱ MSTR and MSTY performing more or less the same on a total return basis, as the dividend payments from MSTY were mostly offset by MSTY's more pronounced share price crash, I also continue to believe that MSTY should not be seen as a lower-risk way of investing in MSTR: Downside risk is relatively comparable, despite MSTY's dividend payments that were not able to prevent massive losses on a total return basis.

MSTY's Bitcoin Exposure While the YieldMax MSTR Option Income Strategy ETF is branded as an income investment and is seen as that by many investors, it still remains a bet on Bitcoin ( BTC-USD ), or, more precisely, on a fast-growing Bitcoin ￰14￱ all, MSTY's underlying -- Strategy Inc -- is a leveraged bet on ￰15￱ that has worked out well for MSTR investors during past Bitcoin bull runs, it introduces major risks for MSTR and MSTY ￰16￱ issues debt and shares to buy Bitcoin, and MSTR also trades at a considerable premium compared to the per-share value of its Bitcoin ￰17￱ that can still make MSTR attractive for someone who believes that the price of Bitcoin will rise tremendously in the future -- such as ARK Invest with its $1.2 million price target -- it also means that MSTR is a quite risky play if Bitcoin doesn't rise as much as ￰18￱ recently, the price of Bitcoin has actually fallen, which naturally is even worse for MSTR, and, of course, for MSTY: Data by YCharts Bitcoin has dropped almost 20% in the last couple of weeks, relative to the previous high, meaning Bitcoin is almost in a bear market ￰19￱ to MSTR being a leveraged bet on Bitcoin, MSTR has dropped way more than Bitcoin -- MSTR trades at less than half its 52-week high ￰20￱ price of Bitcoin has always been volatile, and I don't know where it will trade in the future -- but I see that momentum currently is weak and that enthusiasm seemingly has faded in recent ￰21￱ could result in further downside potential for Bitcoin's price, which would likely result in an even larger hit to MSTR's share price due to Strategy Inc.

's use of ￰22￱ MSTR falls, MSTY will fall as well, as we have seen ￰23￱ how badly both MSTR and MSTY have performed in recent months, despite Bitcoin still being down less than 20% from its recent high, I don't want to know how far MSTR and MSTY would fall in case we see an even bigger drawdown in the price of Bitcoin -- in the past, Bitcoin has fallen by 50%, 60%, 70%, or even more from time to time. I'm not a Bitcoin bear, and it is possible that Bitcoin will stabilize here or start climbing again -- but it is also possible that Bitcoin falls a lot further, and that could be devastating for both MSTR and MSTY due to MSTR's usage of ￰24￱ Dividends: You Were Warned Some bulls have, in the past, argued that MSTY wasn't very risky -- due to its very high yield, investors would get back their principal in a short period of time, and then any fall in its share price wouldn't be much of a problem.

I think the key counterargument to that is that this only works if MSTY keeps its dividend stable, which it has not done in the ￰25￱ summer, when I argued MSTY should be avoided, its monthly dividend stood at $1.18, or around $14.20 per ￰26￱ then, MSTY has moved to weekly dividends instead of monthly dividends -- nice for those wanting very regular cash flow, but it doesn't mean higher overall ￰27￱ most recently announced weekly payout was $0.169, or around $8.80 per ￰28￱ is around 40% less than in summer, when I last covered MSTY -- dividends have fallen off a cliff in a rather short period of ￰29￱ MSTY were to continue on this trajectory of reducing its payout by roughly 10% per month, the dividend could be way lower than it is today in the not-too-distant ￰30￱ isn't set in stone -- if Bitcoin were to rally, MSTR would climb, MSTY's net asset value would stabilize, and MSTY could be able to maintain the current ￰31￱ history shows that this is not very likely -- ever since MSTY began trading, its NAV has been trending down, and so has its ￰32￱ payout once was north of $4 per month, or more than $1 per week -- relative to that, the payout has dropped by more than 80%.

MSTY: I Think It Remains An Avoid During past bull runs, MSTY has underperformed MSTR, and its dividend didn't really help during the recent bear market -- both MSTR and MSTY performed very badly on a total return ￰33￱ is with Bitcoin still just 20% below its recent high -- if Bitcoin were to fall further, MSTR and MSTY would continue to ￰34￱ is a serial dividend cutter, and I thus believe that it is unlikely that the current dividend will be maintained in the long ￰35￱ current dividend yield of roughly 100% looks enticing, but it has been a yield trap in the past, and I think there is a significant risk of that holding true for the future, too.

I continue to think that investors are better off staying away from MSTY -- if they want Bitcoin exposure, a direct investment in Bitcoin seems like a better idea.