Defiance 2x Short MSTR ETF Plunges 82% After MicroStrategy Surge; Reverse Split and Risks Highlighted for Leveraged Crypto ETFs
The Defiance Daily Target 2x Short MSTR ETF (SMST) has experienced an 82% decline in 2025, hitting a record low of $29 as MicroStrategy (MSTR) stock surged 27% this year, outpacing Bitcoin’s 12% gain. SMST is a leveraged ETF designed to deliver twice the inverse daily return of MSTR, making it fall sharply as MSTR rises. In response, Tidal Trust II announced a 1-for-20 reverse stock split set for May 22, 2025, aiming to lift SMST’s share price and maintain exchange requirements. The dismal ETF performance underscores the substantial risks of trading inverse and leveraged ETFs when the underlying asset is in a bullish phase. Other leveraged MSTR-related funds also posted losses, reflecting heightened volatility and the amplified downside of leverage. MicroStrategy’s now nearly 600,000 BTC holdings further link its stock performance closely to Bitcoin price movements. Analysts at Ark Invest and BlackRock forecast significant long-term Bitcoin growth, suggesting continued pressure for SMST and similar products. SMST’s high 1.29% expense ratio adds to the challenge, eroding returns further. Traders should be aware of the heightened volatility, risk, and potential liquidity changes associated with leveraged crypto stock ETFs, especially amid a strong uptrend in the underlying assets.
Bearish
The combined news indicates a strongly bearish outlook for the Defiance 2x Short MSTR ETF (SMST) and similar inverse leveraged crypto stock ETFs. The continued surge in MicroStrategy (MSTR) stock, which is heavily correlated with Bitcoin due to the company’s massive BTC holdings, directly undermines the performance of short and inverse ETFs like SMST. With leading analysts predicting further long-term growth for Bitcoin, and MSTR tracking closely to BTC’s price, inverse products are likely to face ongoing downward pressure. The recent announcement of a 1-for-20 reverse stock split for SMST aims to address price and liquidity concerns but does not alter the fundamentally challenging environment for bearish leveraged crypto instruments. High expense ratios further erode potential returns, amplifying risks for traders. Thus, the overall impact is bearish for these leveraged inverse ETFs against a backdrop of cryptocurrency market optimism.