In a dramatic turn of events, the Defiance Daily Target 2x Short MSTR ETF, an exchange-traded fund designed to bet against MicroStrategy, has plummeted to historic lows amidst a flurry of trading activity. The fund, trading under the ticker SMST on Nasdaq, nosedived 7.58% to $18.17 on Monday, marking its fourth consecutive day at a record low. This move signals a potential capitulation among bearish traders who seem to be throwing in the towel.
Bears Relent as Bitcoin Soars
Monday’s market action was nothing short of a spectacle. As the SMST ETF witnessed its second-largest trading volume ever—2.88 million shares changing hands—Bitcoin was busy making headlines by surging to new heights, surpassing $122,000 during Asian trading hours. This bullish wave in the crypto market appears to have been a catalyst for MicroStrategy’s resurgence, with its shares climbing over 3% to $456, the highest since November. Single Trader Liquidated for $100 Million as Bitcoin Soars Past $123K: Market Watch provides further insights into the market dynamics at play.
“The market’s reaction suggests an overwhelming sentiment shift,” says crypto analyst Mark Edwards. “Bitcoin’s rally has seemingly forced the hands of those betting against MSTR, leading to a mass exodus from bearish positions.”
The Collapse of Leveraged Bets
The 2x Short MSTR ETF was conceived as a vehicle for investors to profit from declines in MicroStrategy’s share price, leveraging against their significant Bitcoin holdings. However, the fund’s trajectory since its inception last August has been anything but profitable, plummeting from over $2,000 to its current depths, despite a brief rally late last summer. Meanwhile, MicroStrategy’s stock has soared from $100 to well above $440, leaving short sellers in the dust. This mirrors broader trends in the crypto market, as detailed in our recent coverage of ‘Bears in disbelief’ — $1B in crypto shorts wiped as Bitcoin pumps.
According to VettaFi, SMST saw a net inflow of $8.2 million over the past six months, a mere fraction compared to the outflows witnessed in its counterpart, the 2x Long MSTR ETF (MSTX), which enjoyed a recent surge to nearly $50. MSTX has seen trading volumes increase for the fourth consecutive day, with a six-month outflow of over $175 million.
A Historical Context of Volatility
MicroStrategy’s journey as the largest publicly-listed Bitcoin holder has been a rollercoaster. With a cache of 601,550 BTC valued at $70.56 million, the company’s fortunes are intrinsically linked to the volatile nature of cryptocurrency markets. The recent price action underscores the inherent risks of leveraged ETFs, which can amplify gains but also exacerbate losses.
“The market’s fickle nature is on full display,” notes financial strategist Elena Kim. “The same volatility that has propelled Bitcoin to new peaks has also decimated leveraged funds betting against it.”
What Lies Ahead?
As the dust settles, the question remains: where does the market go from here? With Bitcoin’s unrelenting rally and MicroStrategy’s stock on the rise, the outlook for bearish ETFs appears grim. Yet, in the world of crypto, the only constant is change, raising questions about whether this trend can sustain itself or if a reversal is on the horizon.
As we move further into 2025, investors and analysts alike will be watching closely to see if this capitulation marks the end of an era for bearish strategies against crypto-tied equities—or merely a pause before the next market twist.
Source
This article is based on: Strategy Bears Cave In as Anti-MSTR Leveraged ETF Hits Rock Bottom
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
