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JPMorgan Warns of Growing Impact of MicroStrategy-Style Leveraged ETFs on Cryptocurrency Markets

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The Rising Impact of MicroStrategy’s Leveraged ETFs on Crypto Markets

A Growing Phenomenon

According to a recent research report by JPMorgan, the increased size of leveraged MicroStrategy (MSTR) exchange-traded funds (ETFs) and the flows they attract are having a more pronounced effect on the company’s stock and crypto markets than before. This phenomenon is not only notable but also significant in understanding the dynamics at play.

A Record-Breaking Month

November saw a record of almost $11 billion flow into U.S. spot bitcoin (BTC), spot ether (ETH) and leveraged MicroStrategy ETFs combined, with the leveraged MSTR ETFs accounting for $3.4 billion, or almost a third, of the total. This highlights the rising impact of MicroStrategy’s leveraged ETFs in crypto markets via facilitating MicroStrategy’s bitcoin purchase program.

MicroStrategy’s Bitcoin Purchase Program

The company founded by Michael Saylor has spent $13 billion buying bitcoin this quarter alone, as noted by JPMorgan. The growth in these ETFs is fuelled by increasing investor demand in obtaining amplified exposure to bitcoin through an ETF wrapper. This would not normally be available to retail investors.

The Role of MicroStrategy Shares

MicroStrategy shares allow investors who are restricted from investing in spot bitcoin ETFs to obtain exposure to the world’s largest cryptocurrency. Due to the software company’s inclusion in benchmarks such as the MSCI World index, the stock benefits from sizable passive flows.

Passive Flows and Benchmark Inclusion

The report adds that due to MicroStrategy’s inclusion in the Nasdaq-100 index, its share price also reflects investor optimism about the potential profitability of MicroStrategy’s corporate strategy. This includes plans to become a bitcoin bank and develop BTC applications, which add a premium to the firm’s valuation.

A Premium on Valuation

The report notes that the company meets the eligibility criteria for inclusion in the Nasdaq-100 index, according to Benchmark analyst Mark Palmer. This is a significant milestone for MicroStrategy and reflects positively on its stock price.

What It Means for the Stock

As discussed earlier, the inclusion of MicroStrategy in the Nasdaq-100 index means that the company meets the eligibility criteria for this influential benchmark. This has several implications for the stock, including:

  • Increased visibility: With MicroStrategy included in a widely followed index like the Nasdaq-100, it is likely to receive more attention from investors and analysts.
  • Passive flows: As noted earlier, the company benefits from sizable passive flows due to its inclusion in benchmarks like the MSCI World index.
  • Premium on valuation: The report notes that investor optimism about MicroStrategy’s corporate strategy adds a premium to the firm’s valuation.

Conclusion

In conclusion, the increased size of leveraged MicroStrategy (MSTR) exchange-traded funds (ETFs) and the flows they attract are having a more pronounced effect on the company’s stock and crypto markets than before. This highlights the rising impact of MicroStrategy’s leveraged ETFs in crypto markets via facilitating MicroStrategy’s bitcoin purchase program.

The growth in these ETFs is fuelled by increasing investor demand in obtaining amplified exposure to bitcoin through an ETF wrapper. MicroStrategy shares allow investors who are restricted from investing in spot bitcoin ETFs to obtain exposure to the world’s largest cryptocurrency.

Due to the software company’s inclusion in benchmarks such as the MSCI World index, the stock benefits from sizable passive flows and reflects investor optimism about the potential profitability of MicroStrategy’s corporate strategy. This includes plans to become a bitcoin bank and develop BTC applications, which add a premium to the firm’s valuation.

Sources:

  • JPMorgan Research Report
  • Benchmark Analyst Mark Palmer

Note that this article is for informational purposes only and should not be considered as investment advice.