Imagine waking up to find your investment portfolio in shambles, with one asset down a staggering 82% in just months. That’s the reality for investors in the Defiance Daily Target 2x Short MSTR ETF (SMST) in 2025. The sharp decline has left many scratching their heads, wondering how a fund tied to a seemingly solid company like MicroStrategy could crater so spectacularly. Let’s dive into the reasons behind this financial rollercoaster, unpack the risks of leveraged ETFs, and explore what it means for your investment strategy.
The MSTR ETF Crash: What Happened in 2025?
The world of investing is rarely predictable, but the 82% plunge of the SMST ETF in 2025 caught even seasoned traders off guard. This leveraged fund, designed to deliver inverse performance to MicroStrategy’s stock (MSTR), has been a textbook case of high risk meeting harsh reality. To understand this collapse, we need to look at MicroStrategy’s unique position in the market and the mechanics of leveraged ETFs.
MicroStrategy’s Bitcoin Bet Fuels Volatility
MicroStrategy, a business intelligence firm, has become synonymous with Bitcoin investment. Holding nearly 600,000 Bitcoins, the company’s stock price is tightly tethered to the cryptocurrency’s performance. In 2025, MSTR stock surged 27% year-to-date, outpacing Bitcoin’s 12% rise. This rally spells trouble for SMST, which is engineered to profit when MSTR declines. When MicroStrategy’s stock climbs, SMST takes a hit—doubled, thanks to its 2x leverage.
Leveraged ETFs like SMST amplify both gains and losses, making them a high-stakes gamble in volatile markets.
– Financial analyst
Picture this: on a single day in June 2025, MSTR stock rose 1.3%. SMST, true to its design, dropped 2.5%. Day after day, these inverse movements chipped away at the ETF’s value, leading to its jaw-dropping 82% loss since January. It’s a stark reminder that betting against a stock tied to a volatile asset like Bitcoin is like trying to predict a storm’s path.
The Perils of Leveraged Inverse ETFs
Leveraged inverse ETFs sound like a clever way to profit from a stock’s decline, but they’re a minefield for the unprepared. SMST aims to deliver -2x the daily performance of MSTR stock. This means if MSTR drops 1%, SMST should rise 2%—and vice versa. But here’s the catch: these funds are designed for daily performance, not long-term holds. Over time, the compounding effect of daily resets can erode returns, especially in trending markets.
- Daily resets amplify losses: Even if MSTR fluctuates, SMST’s value can erode due to its structure.
- High volatility hurts: MicroStrategy’s Bitcoin-driven swings make SMST’s performance unpredictable.
- Expensive fees: With a 1.29% expense ratio, SMST charges $129 annually on a $10,000 investment, compared to just $3 for low-cost S&P 500 ETFs.
I’ve seen investors lured by the promise of quick gains in leveraged ETFs, only to be burned by their complexity. In my experience, these funds are less about investing and more about speculation. For SMST, the combination of MSTR’s upward trend and the ETF’s high costs created a perfect storm for losses.
Why MicroStrategy Keeps Climbing
MicroStrategy’s stock has been a standout performer in 2025, despite a 12% pullback from its yearly high. Why? It’s all about Bitcoin exposure. The company’s massive Bitcoin holdings make it a proxy for the cryptocurrency’s price movements. With analysts like Ark Invest projecting Bitcoin could hit $2.4 million by 2030, and BlackRock estimating $700,000, MSTR’s long-term outlook remains bullish.
| Asset | 2025 Performance | Key Driver |
| MicroStrategy Stock | +27% | Bitcoin holdings |
| Bitcoin | +12% | Market sentiment |
| SMST ETF | -82% | Inverse leverage |
This table paints a clear picture: MSTR’s gains are SMST’s losses. As Bitcoin’s price climbed to $104,368 in June 2025, MicroStrategy’s stock rode the wave, leaving inverse ETFs like SMST in the dust.
The Risks of Betting Against Bitcoin
Betting against MicroStrategy is essentially betting against Bitcoin, and that’s a tough call in today’s market. Cryptocurrency has become a mainstream asset, with institutional adoption growing. MicroStrategy’s strategy of accumulating Bitcoin weekly only strengthens its position. For SMST investors, this means the ETF is fighting an uphill battle.
Bitcoin’s long-term potential makes shorting its proxies like MicroStrategy a risky move.
– Crypto market strategist
Consider this: if Bitcoin’s price continues to rise, as many analysts predict, SMST’s value could erode further. Even short-term dips in MSTR stock may not be enough to offset the ETF’s structural disadvantages. It’s a bit like trying to swim against a riptide—exhausting and rarely successful.
Comparing SMST to Other Leveraged ETFs
SMST isn’t alone in its struggles. Other leveraged ETFs tied to MicroStrategy, like the Defiance Daily Target 2x Long MSTR ETF and the T-Rex 2x Long MSTR Daily Target ETF, have also underperformed, dropping 4.5% and 6.4% respectively in 2025. These funds aim to amplify MSTR’s gains, but even they’ve been hit by the stock’s volatility.
Historically, leveraged ETFs have a mixed track record. Take the ProShares UltraPro Short QQQ ETF (SQQQ), which has plummeted 97% over five years, while its bullish counterpart, TQQQ, soared 242%. The lesson? Leveraged ETFs, whether long or short, are volatile beasts that require careful handling.
High Fees: The Hidden Cost of SMST
One often-overlooked factor in SMST’s poor performance is its expense ratio. At 1.29%, it’s significantly higher than traditional ETFs like the Vanguard S&P 500, which charges just 0.03%. Over time, these fees eat into returns, especially for a fund already struggling against a rising stock.
- Compare costs: A $10,000 investment in SMST incurs $129 in annual fees.
- Benchmark ETFs: The same investment in an S&P 500 ETF costs just $3 yearly.
- Long-term impact: High fees compound losses in a declining fund.
These numbers hit home for me. As someone who’s tracked ETF performance for years, I’ve seen how fees can silently drain portfolios. For SMST investors, the high expense ratio is like adding insult to injury.
What’s Next for SMST and MSTR Investors?
Looking ahead, SMST’s outlook remains grim unless MicroStrategy’s stock takes a significant downturn. Given Bitcoin’s bullish projections, that seems unlikely. For investors, this raises a critical question: is it worth holding onto a fund like SMST, or should you pivot to other strategies?
Here are a few options to consider:
- Diversify your portfolio: Spread risk across non-leveraged ETFs or direct crypto investments.
- Monitor Bitcoin trends: Since MSTR tracks Bitcoin, staying informed on crypto markets is key.
- Reassess risk tolerance: Leveraged ETFs are high-risk; ensure they align with your goals.
Perhaps the most interesting aspect of this saga is how it highlights the interplay between traditional stocks and cryptocurrencies. MicroStrategy’s Bitcoin strategy has blurred the lines, making it a fascinating case study for investors. But for SMST holders, it’s a cautionary tale about the dangers of leveraged bets.
Lessons for Investors: Avoiding the ETF Trap
The SMST crash is a wake-up call for anyone tempted by leveraged ETFs. These funds can seem like a shortcut to big gains, but they’re more like a tightrope walk without a safety net. To avoid similar pitfalls, consider these takeaways:
Investing in leveraged ETFs requires a deep understanding of their mechanics and risks.
– Market commentator
First, always research the underlying asset. MicroStrategy’s Bitcoin holdings make it a unique beast, and betting against it requires conviction that Bitcoin will falter. Second, understand the ETF’s structure—daily resets and leverage amplify short-term moves but can devastate long-term returns. Finally, keep fees in check. High expense ratios can turn a small loss into a catastrophic one.
The Bigger Picture: Crypto and Stocks Collide
The SMST debacle isn’t just about one ETF’s failure; it’s a window into the evolving relationship between cryptocurrencies and traditional markets. MicroStrategy’s bold Bitcoin strategy has made it a darling of crypto enthusiasts, but it’s also exposed investors to new risks. As more companies explore crypto integration, we’re likely to see more ETFs—leveraged or not—tied to this hybrid model.
In my view, this convergence is both exciting and daunting. It’s exciting because it opens new avenues for investment, but daunting because it demands a broader skill set. Investors now need to understand both stock fundamentals and crypto dynamics—a tall order for most.
Final Thoughts: Navigating the MSTR ETF Storm
The 82% crash of the SMST ETF in 2025 is a stark reminder that not all investments are created equal. Leveraged inverse ETFs like SMST can amplify returns, but they also magnify risks—especially when tied to a volatile stock like MicroStrategy. For investors, the lesson is clear: know what you’re getting into, keep an eye on fees, and never bet against a trend without a solid plan.
As Bitcoin continues to shape markets, MicroStrategy’s stock—and the ETFs tied to it—will remain in the spotlight. Whether you’re a crypto bull or a cautious skeptic, understanding these dynamics is crucial for navigating the financial landscape. So, what’s your next move? Will you steer clear of leveraged ETFs or dive deeper into the crypto-stock nexus?
