Blood loss exceeds 80%! Retail investors chasing the rise in bitcoin, the "number one belief stock," suffer a backlash from high-leverage ETFs.

Retail investors who flocked to participate in Michael Saylor's grand experiment with Bitcoin are now paying a heavy price. As the entire cryptocurrency market collapses, Strategy Inc. (MSTR.US), once popular for packaging cryptocurrency assets as publicly traded stocks, is striving to soothe market sentiment - its stock price has plummeted by over 60% from recent highs. On Monday, Strategy announced that it had set up a $1.4 billion reserve fund to pay dividends and interest, attempting to alleviate concerns that it may be forced to sell Bitcoin if the price continues to fall. But for many investors, the losses may be irreparable. Leveraged ETFs tracking the volatile stocks of Strategy, such as the 2x Long MSTR ETF-Defiance (MSTX.US) and 2x Long MSTR ETF-T-Rex (MSTU.US) (which offer double daily returns), have seen declines of over 80% this year, ranking among the ten worst-performing products out of over 4,700 ETFs in the U.S., behind only obscure gold miners and semiconductor bear funds. Another fund launched during the cryptocurrency frenzy in June, the 2x Long MSTR ETF-GraniteShares (MSTP.US), has also suffered significant losses since its debut. The combined assets of these three funds have shrunk by approximately $1.5 billion since early October. Previously, when companies like Defiance and Tuttle Capital Management introduced high-risk products that track Wall Street's most famous Bitcoin alternatives, retail funds poured in. However, what was once seen as a shortcut to amplify cryptocurrency profits has now become a cautionary tale of spiraling leverage, volatility, and market sentiment deterioration. Strategy's stock price fell by 34% in November, and Bitcoin has also dropped by around 30% from its October high, now hovering around $86,000. On Monday, Strategy closed down by 3.25%, with an intraday drop of up to 12%. "Recent Bitcoin retracements have hit Strategy's stock price hard, and the double leverage products like MSTX and MSTU have further amplified losses," noted Roxanna Islam, industry research director at ETF firm TMX VettaFi. "This reminds us that leverage single-stock ETFs shine during uptrends, but once the underlying trend reverses, profits may quickly dissipate." Defiance declined to comment. Tuttle Capital and GraniteShares, the issuer of MSTP, did not immediately respond to requests for comments. The core of market concerns lies in a valuation metric called the "market value-to-net asset value ratio" (mNAV), which measures Strategy's enterprise value compared to its Bitcoin holdings. Currently, this premium has almost disappeared, with the ratio dropping to around 1.17, a level that company executives had warned was dangerous. CEO Phong Le stated in a podcast that if the ratio falls below 1.0, the company may be forced to sell Bitcoin to meet its obligations, but emphasized that this would be a "last resort." The newly established reserve fund comes from recent equity financing and aims to mitigate this risk, covering at least 21 months of dividend and interest payments. However, this measure has failed to halt the decline in stock prices or alleviate concerns about the leverage risk, retail dependence, and financing model pressure on Strategy. To continue acquiring Bitcoin, Strategy has issued additional common stock multiple times, a controversial strategy that dilutes existing shareholder equity. As the valuation premium dissipates, the company has turned to issuing higher-cost financing tools like preferred shares to fund its cryptocurrency purchases. Meanwhile, the ETF ecosystem built around Strategy is in trouble. Data shows that at least 15 ETFs trading are based on its stocks, with most experiencing double-digit declines this year. The combined assets of MSTX, MSTU, and MSTP have plummeted from $23 billion in early October to around $8.3 billion currently. Despite increased institutional involvement and political support from the Trump administration in the cryptocurrency space, the market downturn continues to devastate miners, altcoins, and companies holding a large number of tokens. Leveraged ETFs, once favored by retail investors earlier this year, have now become one of the hardest-hit areas. The design intent of these funds was to track Strategy's daily fluctuations by twofold - but this structure may rapidly backfire in volatile markets. Even if the stock eventually remains flat, the compounding of gains and losses can erode profits, known as "volatility drag." When Strategy's stock price fluctuates sharply, ETFs not only track the decline but also greatly magnify it. "Leveraged ETFs are typically risky investment tools. Betting with leverage on a company's stock that leverages high-speculative assets is even riskier," commented Michael O'Rourke, Chief Market Strategist at Jonestrading. Now, Strategy's position in major indices is also precarious. Morgan Stanley analysts warned that the company may be removed from benchmarks such as the MSCI USA Index and Nasdaq-100 Index, potentially triggering outflows of tens of billions in passive funds. For Strategy, which was once seen as a potential S&P 500 component stock, the current reversal is indeed cruel.