MSTU Exposes Investors To More Leverage Than Expected

Summary T-Rex 2X Long MSTR Daily Target ETF (MSTU) receives a Sell rating due to amplified risks tied to MSTR's leveraged bitcoin exposure. MSTU is suitable only for daily trading; holding longer risks compounded losses, value decay, and unrecoverable capital erosion. MSTR's financial strain stems from declining bitcoin prices, high leverage (1.40x assets/equity), and $8.2b in debt, pressuring MSTU further. Potential catalysts for further downside include bitcoin volatility, debt servicing challenges, and risk of MSTR delisting from MSCI indices. The T-Rex 2X Long MSTR Daily Target ETF ( MSTU ) is a leveraged exchange-traded fund designed to provide investors with 2x the daily performance of Strategy ( MSTR ) shares. MSTU can be utilized by traders seeking to amplify their exposure to MSTR shares, though may be exposed to substantial volatility in doing so, making this strategy only appropriate for seasoned traders with strict risk management. Given the risks associated with the underlying MSTR shares, I am recommending MSTU with a Sell rating. MSTU should only be considered for daily exposure; investing in MSTU for longer than a single trading day may expose investors to significant risks, including compounded returns, value decay, and unrecoverable losses. About T-Rex 2X Long MSTR Daily Target ETF MSTU was launched by Rex Shares on September 18, 2024 on the CBOE Exchange. MSTU was designed to provide traders with 2x the daily performance of MSTR shares through the use of total return swaps [TRSs]. Using the TRSs, MSTU has the ability to leverage exposure to achieve the 2x daily performance target. MSTU takes both the payer and receiver position across its strategy, balancing exposure across both ends of the trade. As the receiver, MSTU will receive total return exposure to MSTR shares’ performance in exchange for a fixed rate. As the payer , MSTU will receive a fixed rate in exchange for MSTR shares’ performance. Swaps are generally settled daily in cash, exchanging the daily performance for the fixed rate. Corporate Filings MSTU shares have been under significant pressure in recent months as Strategy’s financial position weakens. The underlying cause of the financial challenges is the declining price of bitcoin. This has directly impacted Strategy given its leveraged bitcoin strategy, in which Strategy would issue debt in order to purchase additional bitcoin to be held in the treasury. Though the strategy has gained interest by retail investors as an alternative bitcoin investment vehicle, the strategy has since faced hardship with the price of bitcoin declining by -8% in the last year, which has pressured MSTR shares to decline by -50%. TradingView As a result of the significant selling in the last year, MSTU shares have declined by over -91%. For long-term investors, the price decline may have led to significant value decay and unsalvageable losses. TradingView As a result of the price decline in bitcoin, Strategy has been increasing its liquidity in order to remain in good standing for its preferred shares and debt. Accordingly, Strategy has increased its cash position to $2.19b. As of q3’25, Strategy had $8.2b in total debt on the balance sheet with a financial leverage ratio of 1.40x assets/equity. I believe the biggest challenge presented is that Strategy used conventional debt in order to gain leveraged bitcoin exposure as compared to using TRSs like leveraged funds. The critical challenge is that Strategy is investing in non-interest-bearing assets using debt with the intention of employing a buy-and-hold strategy on the bitcoin purchased. This means that Strategy will need to raise cash in order to cover interest and dividend payments on debt and preferred shares, adding certain risks to its leveraged bitcoin holdings, particularly during periods of market decline. MSTU shares have been reflective of the significant price decline faced by MSTR shares at an amplified rate. Looking at daily performance, MSTU shares may be set for further decline relative to MSTR shares. TradingView Despite the generally positive fund flows into MSTU, shares have faced a sharp decline as a result of pricing, resulting in a -$2b change in net assets in the last year. ETF Database ETF Database Taking into consideration fund flows in the last few months, investors may be expecting a reversal in the underlying share price. The challenge presented is that MSTR faces a number of factors that may influence the share price, including the price of bitcoin, remaining in good standing on its debt, and the possibility of MSTR being delisted from MSCI indices , all of which may pressure the share price. ETF Database Risks Related to MSTU MSTU is a leveraged ETF designed to provide traders with 2x the daily performance of MSTR shares, exposing traders to certain risks that should be considered prior to making a final investment decision. MSTU may expose investors to substantial risk related to the price of bitcoin, particularly when considering MSTR shares as a leveraged bitcoin strategy. MSTU employs leverage that may result in enhanced exposure to MSTR shares and may result in compounded returns, value decay, and significant losses if held for longer than a single trading day. Actively trading MSTU may expose investors to higher capital gains taxes, trading fees, and management fees; MSTU charges a 105bps expense ratio and has an average bid/ask spread of 0.11%. You can review additional risks here and the SEC bulletin here . Given the substantial risks associated with trading leveraged funds, investors should adhere to strict risk management policies, particularly when it comes to sell discipline. Final Thoughts MSTR shares may face additional selling pressure with operational and stock-related catalysts coming into play, particularly related to making interest and dividend payments on its debt and preferred shares, the price of bitcoin, and the possibility of being delisted from MSCI indices. Given these risks, as well as the substantial exposure gained while trading leveraged funds, I am recommending MSTU with a Sell rating.