Summary Circle Internet is a unique, profitable stablecoin pure play with strong top-line growth and expanding margins. USDC's adoption is accelerating, with real-world use cases like Shopify integration driving a massive total addressable market (TAM) expansion. Unlike many tech IPOs, CRCL is already profitable with impressive 43% margins. Analysts project that a massive operating leverage will drive margins toward 58% by 2027. Consensus and analyst forecasts project robust revenue and earnings growth, supporting a fair value estimate 19% above current prices. Intro and Thesis Circle Internet Group, Inc . ( CRCL ) is already a $40 billion market cap internet financial system company, which mainly focuses on providing "a suite of stablecoins and related products that include a network utility and application platform for organizations". The firm went public in early June 2025 and started trading at $31 per share, and after getting the investors' attention, it quickly soared above $200 per share in less than 3 weeks. Since late June, however, the CRCL stock has been consolidating, going below that $200/share mark: Seeking Alpha data, CRCL's historical prices The sell-off, although I admit that it can last for a while, made CRCL undervalued, in my opinion, given the firm's prospects of gaining profitability and considering its top-line expansion opportunities amid the extreme growth of TAM. I decided to rate CRCL as a "Buy" today because I think that in the long term, the uniqueness of Circle's ecosystem should give its investors massive gains as the business momentum keeps getting stronger. Banks Are Bullish on Circle's TAM Opportunity As Goldman Sachs analysts noted in their rating initiation report on Circle (proprietary source, June 30, 2025), CRCL is actually the "only publicly traded pure play within stablecoins, a unique component of the crypto ecosystem, which lacks the direct price volatility related to crypto trading." This is why Circle has a great "scarcity value," so to speak: As the number of investors who hold a positive view of crypto and blockchain tech in general increase, the CRCL stock becomes the first (and so far, only) scaled blockchain-native digital infrastructure play available to them, and so this fact should create some sort of valuation premium, in my view. At the heart of CRCL's business model, we find the circulating supply of USDC: Circle generates the majority of its revenues from the interest earned on its reserves, which are held in cash and short-term U.S. Treasuries that fully back every USDC token on a 1:1 basis. So, any uptick in USDC circulation and usage translates almost directly to top-line growth. My gut feelings suggest that the usage will be growing at a massive CAGR over the next few years, and Barclays' recently published research (proprietary source, June 30, 2025) backs that feeling with a quantified figure of 38%: Barclays [proprietary source, June 30, 2025] So, stablecoins appear to be nearing a pivotal turning point as they're "exiting the crypto realm and entering traditional finance, where an extensive TAM awaits", the analysts continued in their study. Today, the process of moving money across legacy financial infrastructure comes with multiple inefficiencies, such as high fees, lengthy transfer times, etc., but stablecoins seem to represent "a better mousetrap poised to provide a more seamless, efficient way to move digital money at scale." Circle's TAM is very likely to experience a tremendous boost as the stablecoins' financial infrastructure gets better and more widely used over time. The TAM expansion is already happening in the real world, with the recent news stating that the new Coinbase's ( COIN ) partnership with Shopify ( SHOP ) to integrate USDC payments has already taken place, expanding the demand vector for USDC beyond speculation and into everyday commerce. One can assume that the usage of USDC may show a "hockey stick" dynamic if this trend continues through this multi-trillion-dollar arena (I mean, the e-commerce market). Goldman Sachs' analysts also support the view of tremendous growth opportunity for USDC, projecting even higher CAGR for the market's growth (40% vs 38% above), but they put CRCL's potential revenue CAGR at just 26% because of its Fed funds rates sensitivity. We forecast a robust 26% CRCL net revenue CAGR in 2024-27E, which lags our 40% USDC CAGR, as CRCL is rate sensitive and impacted by lower Fed Funds rates, and as it incentivizes an increasing portion of USDC to sustain ecosystem growth. I See Some Disconnection With the Consensus From the above discussion, I think that Circle's TAM growth is unquestionable, but so far, the current earnings consensus doesn't agree with the sceptic findings that Goldman's analysts made. The 3-year CAGR of CRCL's revenue is projected at ~41.12% (2025-2028), with non-GAAP EPS projected to grow by 3.5x by the end of FY2027. Seeking Alpha, CRCL I agree with the consensus more because what I see today in Circle's financials is that it seems to be booming; CRCL isn't a cash-burning VC-backed company that is deemed to stay in deep losses for years to come, as they're already making great margins. In FY2024, the firm made a net income of $156 million on an adjusted EBITDA of ~$285 million, translating to a robust 43% margin. The forward-looking projections from Barclays Research paint an even more attractive picture of the operating leverage inherent in this business model: As the IPO-related costs subside in the next quarters, the analysts expect to see Circle's adjusted EBITDA of ~$420 million in FY2025, and then ~$797 million by FY2027 (all amid expanding marginality). Barclays [proprietary source, June 30, 2025] In my view, the powerful combination of high growth and high profitability is exceptionally rare among recent IPOs, and this fact provides a fundamental floor to the bullish investment case that few, if any, other blockchain-related companies can claim right now. The main risk to Circle that analysts bring in lies in its dependence on interest rates (see the "Risk" section below for more clarity on this). Indeed, as Circle's revenue comes from the interest it earns on real dollar reserves against the massive USDC holdings, any major cut from the Fed would mean that its reserves would go down, directly reducing its income. It's a straightforward process. But I think Circle can handle this risk through sheer volume if the total number of dollars they hold (which is tied to USDC usage) increases dramatically, any decrease in interest rate they earn per dollar can be successfully offset. The expansion of USDC's circulation should be their top priority, and if the Shopify/Coinbase partnership goes well, with USDC transferring being a useful and effective payments tool for users, it will open up a massive e-commerce market, with other markets joining it shortly. When I think of cross-border payments TAM of $39.9 trillion (as of 2024), which can reach over $64 trillion by 2032, I understand where that 40%+ CAGR in USDC usage can come from. So, I don't really support bearish views on Circle's revenue lagging its end market's growth trajectory as severely as Goldman Sachs pointed out in their report. The sensitivity to interest rates should stay, that's for sure, but I assume the offsetting effect from larger-than-anticipated USDC circulation growth would make Circle's top line more stable over time. Another thing Circle seems to be capable of doing is diversifying its revenue streams. As more transactions happen using USDC, Circle can begin to introduce new, fee-based services, and it could be just charging tiny fees for certain types of transactions or offering premium software and tools for businesses that use USDC heavily. Again, a lot here depends on the USDC circulation volumes in the next few years, but by building out this kind of value-added services, Circle can create new revenue streams that are based on the activity within its network, not the interest rate environment. With all that in mind, let's address the stock's valuation: What banks think, and what is closer to reality? Circle's Valuation Analysis When it comes to Circle's valuation analysis, we have 2 opposing views. Barclays provided a comparison table, showing close peers to CRCL (as "close" as it's possible in this case), and deriving a price target of $215 based on that table plus DCF modeling. Barclays [proprietary source, June 30, 2025] On the other hand, Goldman's analysts use an adjusted P/E ratio (excluding the SBC costs). Using a 60x on the next 4 quarters of modeled-out 3 key financial statements, they come up with a PT of $83 per share. CRCL's premium growth profile, with upside potential from penetration of very large TAMs, justifies a multiple above the high end of peers, in our view. We forecast 26%/37% 2024-27E CRCL revenue/net income CAGRs, vs. 11%/7% for peers. Evidencing robust stablecoin TAM expansion optionality over time, >70% of investors expect stablecoin market cap could rise from ~$240bn today to >$1tn. As such, we believe CRCL should trade above even HOOD, the peer with the highest P/E, which has a 19% 2024-27E revenue growth rate (GSe), substantially below our 26% CRCL top line forecast. As such, our CRCL target P/E is at a ~7.0x P/E premium to HOOD's current NTM P/E. In my opinion, while the risks outlined by GS sound convincing, the underlying key assumptions they make might be too conservative. First, they set a sales CAGR well below the consensus rate, which is weird. Second, I can't figure out why they use an adjusted P/E approach to value Circle, taking into account the firm's high-growth profile - I think that a better approach would be a focus on the stock's price-to-sales multiple. If CRCL makes $3.4 billion in sales as currently expected by the market's consensus, its implied P/S ratio would be slightly above 12x. Visa ( V ) trades at 15.24x , while Mastercard ( MA ) trades at 14.29x , and these two don't have growth rates even close to what we see in CRCL's case. I think that CRCL can trade at 13-14x forward sales next year, so at $3.4 billion, the fair value per share should be close to $229, which is about 19% above the current stock price. Where Can I Be Wrong? The main risk that can stop CRCL from growing its sales at the rate of the USDC's expansion in the future is the firm's sensitivity to interest rates. GS estimated that "a 25bps rate cut could drive a ~5.5% hit to revenue, and an ~11% hit to adjusted EPS, and the market currently discounts 5 Fed Funds rate cuts in 2025-26." So, if Circle's top line doesn't expand the way the current consensus expects because of the upcoming rate cuts, the stock's fair value would take a hit. One more thing to keep in mind is Circle's dependence on Coinbase's distribution. I mean, COIN is CRCL's most important distribution partner, to which ~55% of its total FY2024 USDC reserve income was distributed, based on the firm's disclosures. So, if COIN chooses to distribute another stablecoin aside from USDC, this could notably slow USDC growth and thus lead to lower revenue growth for CRCL in the future. The valuation analysis I provided above also risks being misleading: There are 2 ways to approach finding Circle's fair value, and I might unintentionally pick the one that "feeds" my bullish bias. Please make sure to do your own due diligence before buying CRCL stock. The Bottom Line I admit that it might not be an ideal time to buy CRCL stock after its post-IPO June 2025 run-up; the price can cool down dramatically if the broader market starts to weaken. But for long-term growth investors, seeking blockchain crypto exposure in a firm that isn't just a crypto thing, but a legit profitable business, Circle Internet Group shall be one of the best and only picks. I think it's currently undervalued by about 19%, so I decided to rate it as a "Buy" today. Thank you for reading!

2025-07-03 14:36

More on markets The Market's Turning Points: A Mid-Year Review And Future Forecast There And Back Again - A 2025 Market Story A Healthy Rotation To Start The Third Quarter Citi reaffirms bullish H2 outlook on the market despite volatility ETF inflows hit historic pace: $556B in H1 positions 2025 for a record year

2025-07-03 13:54

OpenAI issued a firm statement Wednesday denying any affiliation with the tokenized equity tokens offered by trading platform Robinhood, emphasizing that the tokens do not represent real ownership or equity in the company. The trading platform began offering tokenized shares of OpenAI and SpaceX ( SPACE ) to its users in Europe. “These ‘OpenAI tokens’ are not OpenAI equity,” OpenAI wrote on X . “We did not partner with Robinhood, were not involved in this, and do not endorse it.” The company said that “any transfer of OpenAI equity requires our approval — we did not approve any transfer,” and warned users to “please be careful.” Robinhood down 1.5% in premarket trading.

2025-07-03 11:20

Asia stock markets saw muted performance on Thursday as market participants assessed a confluence of factors, which included the upcoming resolution of U.S. trade agreements, with a deadline set for July 9, alongside recently published services sector data from China and Australia's latest trade balance. As the July 9th deadline approaches, the U.S. has finalized only three trade agreements: with the UK, China, and Vietnam. Global market sentiment was also tempered by anticipation of today's U.S. jobs report, a crucial indicator for the Federal Reserve's interest rate policy. Gold declined to around $3,340 per ounce on Thursday, giving back some of the gains from the previous session. Japan ( NKY:IND ) fell 0.20% to around 39,800 on Thursday, snapping a two-day losing streak as optimism over trade developments helped steady market sentiment. The Japanese yen stabilized around 143.7 per dollar on Thursday after facing some pressure in the previous session. The au Jibun Bank Japan Services PMI was revised higher to 51.7 in June 2025, up from 51.5 in the preliminary estimate and following a final reading of 51.0 in May. The Bank of Japan should resume rate hikes after a temporary pause to assess the impact of U.S. tariffs on Japan’s economy, board member Hajime Takata said in a speech Thursday. “My view is that the BoJ is currently only pausing its policy interest rate hike cycle,” he noted, adding the bank should shift away from its ultra-loose policy after a period of "wait and see". China ( SHCOMP ) rose 0.17% rallied with the Shenzhen Component climbing 0.5% to above 10,460, following reports that the US has lifted certain export restrictions on chip design software to China, and the offshore yuan steadied around 7.16 per dollar on Thursday as investors digested the latest PMI data. A private survey showed China’s services activity expanded at the slowest pace in nine months in June. The Caixin China General Services PMI declined to 50.6 in June 2025, down from May’s 51.1 and below market forecasts of 51.0. In a significant development for U.S.-China trade agreement, the U.S. has lifted some export controls on chip design software sales in China , previously imposed in May, that required licenses for certain tools and chemicals. This policy shift is set to resume trade in critical sectors like rare earths and advanced technologies. Hong Kong ( HSI ) fell 0.74% to 23,963 on Thursday morning, swinging from the prior session’s gains amid weak data from the mainland. India ( SENSEX ) rose 0.46% to 83,715 in early deals on Thursday, halting losses from the previous session amid optimism over trade negotiations following a US-Vietnam trade deal just days ahead of a July 9 deadline. India's private sector growth hit a 14-month peak in June 2025, with services and manufacturing rising the most in 10 months and 14 months, respectively. Australia ( AS51 ) fell 0.03% to around 8,580 on Thursday after closing at a record high in the previous session. The Australian dollar slipped to around $0.657 on Thursday, ending a three-session winning streak, weighed down by lackluster trade figures. Australia’s May trade surplus narrowed sharply to AUD 2.24 billion , well below expectations of AUD 5.09 billion and a revised AUD 4.86 billion in April, marking the smallest surplus in nearly 5 years, with exports hitting a 3-month low due to weaker US shipments affected by tariffs. The S&P Global Flash Australia Services PMI Business Activity Index rose to 51.8 in June, up from 50.6 in May, signaling the fastest pace of expansion since May 2024. In the U.S., on Wednesday, all three major indexes ended higher after President Donald Trump announced Wednesday that the U.S. will impose 20% tariffs on imports from Vietnam under a new trade deal finalized during last-minute talks. Investor sentiment was further bolstered by renewed trade optimism and soft labor market data, which reinforced expectations for Federal Reserve rate cuts. Markets turned their focus to the upcoming June jobs report. U.S. stock futures held steady on Thursday as investors awaited the closely watched June jobs report: Dow +0.05% ; S&P 500 +0.04% ; Nasdaq +0.04% . Currencies: ( JPY:USD ), ( CNY:USD ), ( AUD:USD ), ( INR:USD ), ( HKD:USD ), ( NZD:USD ). More on Asia: U.S.-China trade agreement leads to lifted chip design software restrictions Australia's trade surplus narrows to five-year low in May, missing forecasts amid export dip Australia's manufacturing contraction deepens in May; retail sales miss estimates China's factory activity returns to expansion at 50.4, new orders surge amid better trade Japan's manufacturing PMI revised downward to 50.1 in June; Nikkei index drops as Trump threatens new tariffs

2025-07-03 09:12

Summary SoFi's re-entry into crypto unlocks a massive new market, with stablecoins and crypto trading poised to drive significant revenue growth. The fintech exited the crypto business in late 2023 due to regulatory pressures to gain the banking license. Crypto fintechs are currently trading at much higher valuation multiples due to the scalable and capital-light business models. Despite recent stock highs, SoFi remains undervalued at 16x EBITDA, especially compared to crypto peers like Robinhood and Circle. While SoFi Technologies, Inc. ( SOFI ) has reported impressive financial results since exiting the crypto sector back in late 2023, the stock has now soared to multi-year highs on just announcing the future launch. The fintech should unlock a whole new segment that has launched a peer stock to a far higher market cap. My investment thesis remains ultra-Bullish on SoFi, even at recent highs, due to a still relatively cheap valuation and a large market opportunity. Source: Finviz Golden Opportunity Back on June 25, SoFi announced the return of crypto to the fintech platform. The company plans to initially offer cryptocurrency trading in the popular coins like Bitcoin and Ethereum, along with plans to offer stablecoins, the opportunity to borrow against crypto assets and expanded payment options. Source: SoFi website For now, members have to join a waitlist with an unknown timeline to product launches. The U.S. Senate just passed the Genius Act providing a regulatory path for stablecoins, opening up the door for fintechs like SoFi to launch such products. The stablecoin market is forecasted to rise more than tenfold by 2030 to between $3 trillion and $4 trillion , up from only ~$250 billion now. Analysts at Citizens JMP see the potential for annual revenues from stablecoins opening up a $100 billion opportunity. SoFi originally offered limited crypto trading of up to 20 tokens back in 2023 before exiting the opportunity to pursue a digital bank. SoFi handed the operations over to Blockchain.com and apparently included crypto assets of just under $140 million . The fintech didn't provide a lot of details regarding the crypto business size, probably due to its infancy position, but SoFi has experience in the area and could potentially lead to a snappy re-launch. Robinhood started offering crypto a few years back, and the company only topped $50 million in quarterly revenues in Q1'24. Robinhood recently saw revenues jump to $610 million during the Q4/Q1 period, for an annualized rate above $1 billion. The company reported crypto notional trading volumes in Q1 of $46 billion, vastly larger than the limited balances held by SoFi back in late 2023. The online broker lists a cryptocurrency asset balance of $28 billion to end March. Robinhood has total platform assets of $221 billion, so a lot of questions will exist on whether SoFi has the investment products to achieve any level of success, as the brokerage business isn't a prime focus. Source: Robinhood Q1'25 presentation Left Behind Robinhood has ridden these transaction-based revenues from both crypto and stock options trading to produce an $87 billion market cap, now over 4x the valuation of the similarly sized SoFi previously focused on lending products. SoFi has the potential to use the additional growth from transaction-based revenues to boost the stock valuation. Data by YCharts Even recent IPO Circle Internet Group ( CRCL ) has seen the market cap start to $45 billion based on offering a 2nd largest stablecoin product. Clearly, the market is offering higher valuations to fintechs involved in the crypto sector. Robinhood has seen adjusted EBITDA targets suddenly double the estimates for SoFi. Robinhood now trades at nearly 40x EBITDA targets of $2.25 billion for 2026 while SoFi only trades at 16x a forecast of $1.27 billion for next year. Data by YCharts SoFi has the opportunity to unleash crypto revenues, along with the push into the SoFi Plus subscription service, similar to how Robinhood used the Gold Card product to attract a horde of new customers. SoFi had already forecast 25% annual growth over the next 3 years, while analysts generally aren't forecasting these same growth rates with estimates for growth below 20% in both 2026 and 2027. Source: Seeking Alpha If crypto generates the next inflection point for SoFi, the stock has substantial upside. The fintech would see both a boost to already solid sales growth forecasts and another step up in profits with a possible corresponding valuation multiple boost due to the shift away from relying on lending products for growth while moving to scalable, capital-light revenue. The risk is that SoFi is now late to offer a crypto product with Coinbase ( COIN ), Robinhood and other platforms having first mover advantage. In addition, SoFi might always have a valuation tied to the risks associated with lending products. Takeaway The key investor takeaway is that SoFi already offered a compelling valuation and business model, but crypto could take the fintech to the next level. The stock has a compelling valuation at only 16x adjusted EBITDA targets with much faster growth rates and the opportunity for crypto and new subscription services to boost SoFi to another level.

2025-07-03 06:33

Summary MST is a leveraged ETF aiming for 150%-200% of MSTR's daily returns, using derivatives and leverage for active trading. Despite weekly distributions, the fund's total returns are negative, reflecting both payouts and recent declines in underlying holdings. Long-term investors face high risks due to leverage, daily rebalancing, and the questionable long-term outlook for MSTR and BTC exposure. I rate MST a Hold, as its structure favors traders over investors and lacks a compelling case for long-term capital appreciation. Defiance Leveraged Long + Income MSTR ETF ( MST ) is a new ETF, launched in May. About two months old, I wanted to take a look at it and see how it related to Strategy ( MSTR ), being a fund based on that stock. Moreover, what should the investor make of "Leveraged Long + Income" part of its name as they stumble upon it? I found that it's much long-term or income-focused about it, and I rate it a Hold, thinking it too risky over time to be a good Buy. Performance So Far The first thing to note is the frequency of distributions. MST has paid weekly since its first dividend on May 20th. MST Dividend History (Seeking Alpha) Altogether, a single share has received $1.9178 in dividends since the launch. Price vs. Total Returns (Seeking Alpha) Thus, some of the price decline since launch is a consequence of these distributions, but the fact that total returns are negative also indicates that the holdings themselves have been down recently. What we are seeing, however, is that the fund prioritizes liquidity and monetization for its shareholders, so let's look at the strategy and portfolio behind this dividend policy. Concept and Holdings According to their prospectus , MST is an actively managed ETF that engages in derivative trades, in order to achieve daily returns of 150% to 200% of MSTR. While not a given, the fund may also use leverage in addition to their derivative position to achieve this goal. The choice of derivatives and timing of leverage are all subject to management's situational judgment. In short, it's a fund that actively trades on the swings of MSTR. It also means that the holdings are highly dynamic. Thankfully, the manager's website gives an up-to-date display of their holdings. Partial Holdings as of July 2, 2025 (Defiance Website) The screenshot (above) from that page shows parts of the holdings, but more or less captures what happens inside this ETF. The derivatives vary between swap agreements and call options. The calls are staggered across several strike prices, in order to provide flexibility to the manager based on market movements. This includes creating call credit spreads, in order to generate income in the portfolio. The Treasury positions (either directly or through funds), meanwhile, serve as collateral for the derivative positions they take. The image I've displayed is truly a snapshot, as per the prospectus: At the end of each trading day, the Fund’s swaps and options are marked to market (valued based on current market prices), and the Fund’s investment adviser rebalances the portfolio to maintain leveraged exposure of approximately 150% to 200% of the Underlying Security’s share price. Given this much activity, it's not surprising that distributions are regularly passed to shareholders. Nevertheless, management states that MST's primary investment objective is long-term capital appreciation, with income being secondary. Future Outlook The investment objective seems to suggest that MST is a fund that could be bought with long-term intentions, perhaps buying a large position and reinvesting the weekly dividends. While this would provide many opportunities of compounding, there are plenty of ways this can pan out badly for long-term investors. Let's talk about the underlying security first: MSTR. I've covered it twice, and last time I rated it a Hold. While that was in February, I am not of a mind to update that rating. One can easily surmise that I won't think MST is a Buy if I don't think that about MSTR. I'll just quote my own closing remarks from there: I take issue with the idea that selling shares at a premium to the portfolio to buy more creates "BTC yield," any more than Berkshire doing the same would create "KO yield" with more shares of Coca-Cola. Without a source of earnings (something Berkshire has) to support this BTC accumulation, it's not clear why those who believe in BTC would aim for MSTR instead of buying the BTC directly. It just doesn't make sense to me. For a long-term investor to see appeal in an ETF that has the long term as part of its investment objective, we need to be able to see the long-term potential in the underlying security, and I already find that dubious. MST holding options and its leverage are both especially risky to long-term investors. The potential for magnified losses on even a 5% drop in BTC that gets locked in by daily rebalancing isn't something to ignore. The 1.31% expense ratio doesn't make recovery of principal much easier over time. A similar income fund that I've covered before is YieldMax MSTR Option Income Strategy ETF ( MSTY ). It employs synthetic covered calls and has the effect of regularly passing through gains to shareholders. While it isn't without risks, the potential for losses aren't enhanced in their portfolio, and I didn't even find that to be a Buy. In my view, MST is more a trader's security. MSTR effectively operates as a derivative of Bitcoin ( BTC-USD ), making MST a derivative of a derivative, potentially very volatile and risky. Conclusion I am initiating a Hold rating largely because I see no compelling case to think BTC will move up or down considerably in the near-term, which would trickle into more volatile reactions from the likes of MSTR and MST. In addition, a Buy rating on this security doesn't make sense for long-term investors. While the fund may declare long-term intentions, it seems to me the approach just doesn't allow for it.

2025-07-03 06:04

Summary MST offers leveraged exposure to MSTR via derivatives, with a secondary income strategy using credit call spreads for weekly distributions. Some call it “yielding bitcoin,” but it’s actually an alternative that hides very different functions and purposes. In some ways, it tries to blend the output of MSTX and MSTY, though with a different methodology. Under current conditions, it’s impossible not to consider a potential risk of return decay and NAV decay, similar to leveraged exposures and option-based strategy funds. Have you ever seen a daily leveraged ETF that combines an income strategy like a credit call spread and distributes income weekly? Well, that’s essentially what the Defiance Leveraged Long + Income MSTR ETF ( MST ) does. Let’s be honest: it’s not something you see every day. And I was really intrigued to see how some analysts are already talking about MST as an ETF offering indirect, income-generating exposure to Bitcoin. Fast thinking: “wow.” Slow thinking: “wait... what?!” Curious, because if I let my imagination run wild, I immediately think of an MSTX with distributions like an MSTY . Then I come back to reality, and realize it’s quite different… but before that. What is MST really? A brand-new ETF from Defiance , launched on May 1, 2025, with just $88 million in AUM and 22 positions in its portfolio, which, as we’ll see, is essentially a piece of financial engineering architecture designed to “optimize” exposure to MSTR. Interestingly, Morningstar immediately categorized it under Trading – Miscellaneous , framing it as a tactical rather than strategic ETF, suited for a satellite rather than a core portfolio allocation, for short-term plays rather than long-term holdings (which, let me say, contrasts a bit with the mindset of an income investor). MST - Profile (Seeking Alpha) First thought: “Okay, but how much does it cost me?” A fair and implicit question. The answer: an expense ratio of 1.31%, and a hidden cost of 0.39% spread (hopefully temporary), as indicated by the 30-day median spread. But focusing on cost without understanding the value is a mistake, we know that well by now. So what value does MST offer in return for such a relatively high cost? The Holdings I prefer to start with the holding distribution , so I can get a sense of what MST is really made of, before being influenced by the marketing and fact sheets: A dominant position: 180% in Total Return Swaps on MSTR (via Marex) + 2.65% via Clear Street. So it’s fair to say that MST gains leveraged exposure to MSTR through derivatives ((TRS)). Then comes the “income-oriented” flavor typical of option-based ETFs: credit call spreads on MSTR, short out-of-the-money calls, long further out-of-the-money calls. Then there are cash equivalents, 11% in Treasuries, etc., mainly serving as collateral (more than for stabilization). MST holding distribution (Seeking Alpha) The Strategy Now let’s read the prospectus: what immediately strikes me is that the primary objective is long-term capital growth, and the secondary objective is to generate consistent income. It aims to provide a daily return equal to 150%-200% of MSTR’s performance. It also integrates a credit call spread strategy to generate weekly (or monthly) income. MST - Dividend summary (Seeking Alpha) The words here are extremely important, and I want to highlight them: Income is secondary and not guaranteed. And the options strategy is applied to ~50% of net exposure . TRS (Total Return Swaps) are reset daily: we enter the logic of leveraged ETFs, where in my opinion there should always be a very large disclaimer : daily leverage does not guarantee the same proportions over the long term. The risk? Return decay, just look at what’s happening to MSTX, which maintains similar leverage to MSTR. Data by YCharts A “Yielding Bitcoin” The term Yielding Bitcoin is my own interpretation, Defiance doesn’t define it this way in the prospectus, although the marketing materials do refer to indirect exposure to Bitcoin, naturally because MSTR’s well-known strategy involves acquiring Bitcoin. I, personally, added the word yielding because MST includes up to 50% of net exposure in credit call spreads. But what does it really make sense to expect in terms of price behavior? In my opinion, we can use the performance of MSTX as a benchmark, however, let’s keep in mind that MST has a cap on the upside movement, which could potentially cut capital gains performance, thus a leverage effect yes, but reduced (in my opinion) on the upside. Data by YCharts As for income, it’s unclear, not even the factsheets shed light on it. The only example I know well is MSTY, but that follows a completely different strategy, and I don’t think it makes sense to expect those levels of yield here; it’s not even the fund’s objective. Data by YCharts As of now, SA reports a TTM dividend yield of 9.92%, while Defiance shows a 30-day SEC yield of 1.22%, although the current distribution rate (which varies significantly) is listed at 78%. Here it’s crucial not to be misled, and for this reason, it lies at the core of the ... Risk Section First fear: NAV decay. Am I wrong to say that the investment strategies used by the managers of MST make it likely to generate a potentially high NAV decay? The 19a filings already show a return of capital distribution above 95%. Resulting in a distribution rate of 78% , which, let me say, is “a bit” misleading. Then there's the 30-day SEC yield, at 1.22%, which doesn’t account for option premiums, also creating a false perception of yield. The discrepancy makes the real size of the income unclear and, in my opinion, reinforces the risk of NAV decay. Am I wrong to say that MSTR’s volatility will not play in favor of MST? In practical terms, the fund sacrifices part of the upside to obtain weekly distributions, which should theoretically cushion the drawdowns. But I think this sort of “hedging” is not so evident when negative volatility is as high as MSTR’s (implied volatility above 50 points). Conclusion A fascinating financial engineering product that, in my opinion, should be considered a tactical allocation, definitely not a core holding (if I may add, by paying close attention to the bid-ask spread on short-term trades). After all, it’s essentially a leveraged derivative exposure to MSTR. Among the metrics to monitor, I definitely include the distributions, through the 19a filings, but also the options strategy, mainly whether it will be able to generate alpha compared to MSTX and MSTY.

2025-07-03 05:52

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2025-07-02 22:26

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2025-07-02 18:43