According to U.Today, Blockstream CEO, Adam Back, has expressed his disapproval of a new Exchange Traded Fund (ETF) aimed at shorting the shares of MicroStrategy Incorporated. Back, a prominent Bitcoin advocate, has identified a significant correlation between the digital currency and MicroStrategy, which is the second-largest corporate holder of Bitcoin, with over 210,000 BTC in its portfolio.
Back has criticized the Defiance 2X Short MSTR ETF product, describing it as a 'terrible' one that may not produce the expected outcome. He argues that even if the sponsors of the ETF believe the MicroStrategy Premium was too high, the 2x auto-rebalancing projected to naked short MSTR is a highly Bitcoin-correlated asset. This, he believes, will not fare well for an asset that is trading in a highly volatile trading environment.
Back further illustrated a scenario where the MSTR premium is compressed and the Bitcoin price doubles. In this case, he believes the ETF will be 2x short and the price will overwhelm the NAV correction, leading to accounts getting negatively affected. He concludes that the odds are against the success of the proposed ETF as auto-rebalancing volatile underlying assets leads to capital erosion that is detrimental for portfolios.
Since MicroStrategy began purchasing Bitcoin, its outlook and price valuation have significantly increased. Many investors believe the firm, whose stock is worth $1,631 with a market capitalization of $24.42 billion, is overvalued. Despite this, with MicroStrategy making more than double gains in its Bitcoin bet, many investors are now considering MSTR as another alternative to gain exposure to BTC. The company’s risky bets on Bitcoin have drawn criticisms, hence the short ETF being launched against it. However, the company’s Chairman Michael Saylor has reaffirmed his commitments to Bitcoin, acknowledging the company’s long-term play in that regard.