The dramatic decline in crypto markets has dealt a severe blow to Strategy's leveraged ETFs. But here's where it gets controversial... While many see these funds merely as high-risk investments, their severe losses highlight the deeper vulnerabilities in crypto-related financial products. As Bitcoin's price plummets, so do the shares of funds that are heavily tied to its fortunes, revealing the peril of leverage and speculative trading.
In particular, ETFs connected to Strategy, a company known for its bold crypto treasury strategy—where it holds substantial amounts of Bitcoin—have suffered significant setbacks. Notably, the T-Rex 2X Long MSTR Daily Target ETF and the Defiance Daily Target 2x Long MSTR ETF, both designed to deliver twice the daily return of Strategy's Bitcoin holdings, have plummeted by nearly 85% so far in 2025. Meanwhile, the inverse ETF, which aims to profit when Strategy's holdings decline, lost approximately 48% during the same period.
Strategy’s shares, in general, have experienced a sharp decline of over 40% year-to-date, mainly driven by Bitcoin’s fall below the $90,000 mark after peaking at an all-time high of over $126,000 in October. This crypto market decline is largely attributed to a shift toward global risk aversion—investors are pulling back from volatile assets amid geopolitical tensions and economic uncertainties.
Founded by Michael Saylor, Strategy pioneered a 'buy-and-hold' approach to corporate Bitcoin treasury management. The company's strategy inspired numerous competitors and imitators, yet many of these firms are also struggling to maintain their share prices amid the ongoing crypto downturn. Investors remain closely focused on a key measure known as the "mNAV," which compares Strategy’s total enterprise value to the value of its Bitcoin holdings. Recently, CEO Phong Le mentioned in a podcast that the company might consider selling some of its Bitcoin if the ratio drops below 1—that is, if the company's market value falls below the value of its Bitcoin stash. Based on data from the London Stock Exchange Group (LSEG), estimates suggest the ratio sits around 1.1.
This revelation has caused concern among market analysts. Mike O’Rourke, a chief market strategist at JonesTrading, pointed out that Le’s remarks could undermine Strategy’s core message of holding onto Bitcoin through market turbulence—potentially signaling an eventual shift in their strategy that many investors didn’t expect. As of now, Strategy has not responded publicly to requests for comments.
The financial outlook for Strategy has darkened significantly. The company recently revised its full-year earnings forecast, projecting a profit between $6.3 billion and a loss of $5.5 billion—an enormous drop from prior expectations of a $24 billion net profit, based on an optimistic Bitcoin target of $150,000 by year's end. The drastic revision reflects the brutal reality of falling crypto prices and the risks associated with leveraged investment products. Additionally, Strategy disclosed maintaining a reserve of $1.44 billion to cover dividend payouts and debt obligations.
Meanwhile, short sellers, who bet against Strategy’s stock, have profited by over $2.5 billion this year, including approximately $156 million on just Monday alone, according to analytics firm Ortex. The company’s stock has more than halved since joining the Nasdaq 100 index last November, experiencing a roughly 70% decline from its peak at that time.
Despite these grim numbers, many analysts remain cautiously optimistic. Out of 16 brokerage firms monitoring Strategy, 10 recommend buying, four suggest a strong buy, and only two advise holding—each with a median target price of $485, implying a potential rebound of 183% over the next year. This divergence of opinions raises an important question: Are these analysts underestimating the risks, or is there still untapped potential in the crypto-related assets Strategy holds?
And this is the part most people miss—while the current downturn appears catastrophic, some believe it might mark a turning point for the crypto funding ecosystem. The big question remains: Will Strategy adapt and survive the storm, or will the crypto winter wipe out many of these high-leverage funds entirely? Share your thoughts below—do you agree with the optimistic forecasts, or do you think the risks outweigh the possible gains?
