Crypto Rout Deepens Pressure on Leveraged Strategy ETFs as Regulators, Liquidity Risks, and Treasury Models Face Stress Test

Leveraged exchange-traded funds tied to Strategy Inc., the bitcoin-hoarding Nasdaq heavyweight that built its identity on turning corporate cash into cryptocurrency, are among the worst casualties of this year’s crypto market slump.

The downturn has exposed how fragile leveraged vehicles become when their underlying asset breaks down, and it is prompting renewed debate about whether corporate treasury strategies anchored to bitcoin can survive prolonged risk aversion.

The T-Rex 2X Long MSTR Daily Target ETF and the Defiance Daily Target 2x Long MSTR ETF, which both aim to deliver twice the daily return of Strategy shares, have lost nearly eighty-five percent of their value in 2025. The T-Rex 2X Inverse MSTR Daily Target ETF, meant to offer twice the inverse performance, has also suffered heavy damage, sliding forty-eight percent during the same period.

The simultaneous collapse of both long and inverse leveraged plays reveals the strain that extreme volatility places on daily-reset products, where slump-on-slump losses can compound rapidly and erode capital even when investors guess the direction correctly.

Strategy itself has tumbled more than forty percent this year, dragged down further after bitcoin fell below ninety thousand dollars. The cryptocurrency had reached a record of $126,223.18 in October before global risk aversion choked off the speculative rally and sent capital fleeing to safer assets. That reversal has hit Strategy harder than most because its identity—and valuation—has been treated by markets as a high-beta proxy for bitcoin.

Michael Saylor’s buy-and-hold bitcoin treasury model, which turned Strategy into the most aggressive corporate accumulator of crypto, has inspired dozens of imitators, though many of the companies that mirrored the approach have also posted outsized share-price declines this year. With bitcoin sliding and equity markets jittery, investors have been forced to reassess the idea that enterprise value can sustainably track crypto holdings through every cycle.

The company’s “mNAV” metric has become a key focus. CEO Phong Le said on the “What Bitcoin Did” podcast that Strategy may consider selling bitcoin if the ratio falls below one. Reuters calculations using LSEG data place the ratio near 1.1, giving the company some breathing room, but the comment unsettled investors who long believed Strategy would never sell under adverse conditions. Mike O’Rourke, chief market strategist at JonesTrading, said Le’s remarks undermined Strategy’s central marketing message of not selling despite volatility.

The change in tone comes against a harsh financial backdrop. On Monday, Strategy cut its full-year outlook to a range between a $6.3 billion profit and a $5.5 billion loss, far below its earlier estimate of $24 billion in net profit. That earlier figure, issued October 30, was based on an assumption that bitcoin would reach $150,000 by year-end. The company also disclosed a $1.44 billion reserve to cover dividends on preferred shares and interest on existing debt, highlighting how the tightening crypto environment is eroding financial flexibility.

Vincenzo Vedda, chief investment officer at DWS, said the strategy works only when bitcoin rises, adding that once prices fall, the options left to the company become very limited. The comment captures how sharply investor sentiment has turned: when bitcoin rises, Strategy is hailed as a visionary; when it falls, the business model appears exposed.

Short sellers have seized the moment, earning more than $2.5 billion betting against the stock this year, including around $156 million on Monday alone, according to Ortex. The stock has fallen more than seventy percent from its November 2024 peak and has more than halved since joining the Nasdaq 100 index.

Despite all this, analysts remain surprisingly optimistic. Of sixteen brokerages covering the stock, ten rate it a “buy,” four call it a “strong buy,” and two advise holding, according to LSEG data. The median price target of $485 implies a one-hundred-eighty-three percent gain over the next year.

Saylor delivered a keynote titled “The Undeniable Case for Bitcoin” at a Binance conference in Dubai on Wednesday, even as markets reassess what the case looks like in practice.

The broader market downturn has revived concerns about regulatory risk, especially as leveraged crypto-linked ETFs come under scrutiny. Regulators in the United States and Europe have spent the last two years debating whether daily-reset leveraged products tied to volatile assets belong in retail portfolios. Episodes like the current slump tend to sharpen those debates.

With leveraged Strategy ETFs suffering extreme losses and undergoing heavy intraday swings, questions are growing about liquidity resilience—particularly whether creation and redemption activity can keep up when market makers face widening spreads and underlying shares move unpredictably. These pressures do not imply imminent malfunction, but they do underscore how thin liquidity can become when sentiment evaporates, and leveraged structures amplify stress.

Corporate bitcoin strategies face similar questions. The downturn exposes how sensitive these models are to market pricing and how little room they leave for operational conservatism. If Strategy ultimately sells bitcoin to defend its mNAV threshold, it would mark a symbolic shift for a company long positioned as an immovable accumulator. Even the possibility of such a move signals that corporate treasury models built around bitcoin may evolve into more flexible or hedged counterparts—something that could reduce the mystique but potentially improve balance-sheet stability.

For now, the slump is a reminder that the bitcoin-as-treasury model works spectacularly in bull markets and brutally in downturns. The leveraged ETFs tied to Strategy show the same truth in more explosive form. Investors earn exponential upside when momentum is strong, yet when selling takes over, the losses arrive with equal force.