Bitcoin Shorts Get Crushed as Anti-Strategy ETF Hits Record Low

The market just handed out another harsh lesson to traders trying to bet against Bitcoin’s biggest corporate backer, Strategy (MSTR) (the company formerly known as MicroStrategy), which now holds over 600,000 Bitcoins on its balance sheet. The Defiance 2x Short Strategy ETF (SMST), which trades under the ticker SMST, dropped more than seven percent on Monday to close at $18.17. That marks the fourth day in a row the fund has hit an all-time low, and signals a mass exit among bearish traders.

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Nearly three million shares changed hands, making it the second-busiest trading day in the ETF’s history. That kind of volume during a sell-off typically signals capitulation. In other words, the bears may have finally given up.

Bitcoin’s Rally Lifts Strategy Stock

This crash in SMST is not a surprise. Bitcoin broke above $122,000 earlier in the day, pushing shares of Strategy over 3% higher to $456. That is the stock’s highest close since November.

Strategy now functions as a Bitcoin proxy. With more than 601,000 bitcoins on its balance sheet, the company has turned itself into a pure-play vehicle for digital asset exposure. As Bitcoin rallies, investors pile into Strategy stock, treating it as a leveraged bet on BTC without directly holding the coin.

Naturally, the value of an ETF that profits when Strategy falls, and profits at double speed, collapses in this environment.

SMST Is a Painful Bet Gone Wrong

The SMST fund aims to deliver twice the inverse of Strategy’s daily performance. That means if Strategy rises five percent in a day, SMST is designed to fall by ten percent. This structure works well when the trade goes your way. But when it doesn’t, losses multiply quickly.

Since launching in August last year, SMST has dropped from over $2,000 to under $20. Apart from a short-lived rally in late summer, it has steadily declined, mirroring Strategy’s upward surge. Despite that, the fund still pulled in more than $8 million in net inflows over the past six months, showing that some traders were still hoping for a major reversal.

This week’s price action suggests that optimism has dried up.

Meanwhile, the Bulls Keep Winning

On the flip side, traders betting on more gains for Strategy are having a great week. The Defiance 2x Long Strategy ETF, which trades under the ticker MSTX, climbed to nearly $50 on Monday. That is its highest level since January 24.

Trading volume in MSTX rose for the fourth straight day, reaching 9.2 million shares. And while the fund saw over $175 million in net outflows in the last six months, the latest data suggests renewed momentum as Bitcoin continues to push to new highs.

What Does This All Mean

Shorting Strategy during a Bitcoin bull run has been an expensive mistake. With Bitcoin continuing to surge, demand for Strategy’s stock remains strong, and that strength puts pressure on leveraged inverse funds like SMST, which are designed to profit only when Strategy declines.

This should serve as a cautionary note to investors. Timing is critical, especially when using high-risk tools like leveraged ETFs. When the broader trend is moving against you, even small missteps can lead to large losses.

At this stage, bullish momentum is firmly in control. The market doesn’t have much sympathy for traders betting against it, and recent price action shows just how brutal that lesson can be.

Is Strategy Stock (MSTR) a Good Buy?

Wall Street is leaning heavily bullish on Strategy (formerly MicroStrategy), and the latest analyst updates show that confidence is rising. TD Cowen’s Lance Vitanza raised his 12-month price target from $590 to $680, reiterating a “Buy” rating in the process. That upgrade comes alongside a string of optimistic calls from other top analysts, including BTIG’s Andrew Harte and Bernstein’s Gautam Chhugani, who both project more than 30% upside from current levels.

In total, 12 analysts have issued ratings on the stock over the past three months. Of those, 11 are rating Strategy a Buy, with zero Hold ratings and just one Sell. The average 12-month MSTR price target now sits at $541, implying nearly 20% upside from Strategy’s latest trading price around $451.