MSTY: The Market Environment Is Better For This Fund Now

Summary I am upgrading MSTY from sell to hold due to a more favorable regulatory and political environment for cryptocurrencies under President Trump. MSTY offers high income potential and strong recent returns, but it consistently underperforms MSTR and carries significant downside risk due to volatility. The fund’s options strategy is improving, with more consistent monthly payouts, but its structure limits upside capture and exposes investors to sharp drawdowns. MSTY suits aggressive income investors seeking exposure to Bitcoin’s volatility, but is not ideal for conservative investors seeking stable, consistent income. Sometimes politics and financial factors converge to create a unique market environment that is positive or negative for an investment. While some tobacco companies performed badly in the 1990s, and many financials struggled for several after 2008 because, in part due to regulatory issues, more favorable government policies can also be a tailwind for equities. The Biden administration’s subsidies for renewables as part of the Inflation Reduction Act and Trump’s tax cut in 2017 that helped the market reach record highs are 2 examples of more favorable federal policies for companies benefitting the market. The regulatory environment for Cryptocurrencies has improved dramatically since President Trump was elected in 2024. The 47th President has not only talked repeatedly about making cryptocurrencies part of the US reserve, but he’s also appointed a Treasury Secretary in Scott Bessent who has discussed the strong support of bitcoin and other cryptocurrencies as being part of the American financial system. A company that is heavily leveraged to Bitcoin is MicroStrategy Incorporated ( MSTR ). MSTR is a software company that issues debt to buy Bitcoin. The tech business enables this company to borrow at cheaper rates to level up and buy the cryptocurrency. MSTR has nearly a 65 percent correlation with the price of bitcoin, and the fund usually both outperforms and underperforms most of this cryptocurrency because of the software company’s leverage. A Chart Showing the Correlation between MSTR and Bitcoin (Coindesk) One fund that seeks to take advantage of the volatility levels in MSTR as well as this company’s strong recent performance because of the software operator’s crypto holdings is the Yieldmax MSTR Option Income Strategy ETF ( MSTY ). MSTY’s inception date was in February 2024. Data by YCharts MSTY has offered investors total returns of 272.4 percent since the fund’s inception last year, while the S&P 500 ( SPY ) has offered investors total returns of 15.92 percent during this time period. Data by YCharts Still, MSTY has often underperformed the underlying price of MSTR, and that continues to be the case. Data by YCharts MSTR has offered investors total returns of nearly 418.1 percent since February 2024 when MSTY came to market. MSTY has offered investors total returns of 272.4 percent during this same time period . Today, I am upgrading my rating of MSTY from a sell to a hold. Trump has been able to reach tentative agreements with many countries on tariffs, and there are signs he will soon reach an accord with China, the risk of a significant sell-off in Bitcoin is lower. The current regulatory and financial environment is also likely to remain very favorable for this cryptocurrency, with some catalysts coming up as well . While some construction flaws remain with this ETF, this fund is better positioned now in the current financial and market environment to offer solid income and total returns. MSTY’s expense ratio is .99 percent, the fund’s trailing yield is 140.55 percent, and ETF has $3.76 billion in assets under management. This investment holds US treasuries that have a 6-month to 2-year duration as collateral for the synthetic call spreads and option strategies the fund uses . This investment does not own the underlying MicroStrategy Incorporated stock and MSTY has an 80 percent rule, the fund keeps at least 80 percent of the assets allocated. MSTY’s Holdings (Seeking Alpha) MSTY buys call options that give investors exposure to 100 percent of the move up in MSTR. These options have a 1-6 month time frame. The fund then sells 0-15 percent out-of-the-money calls that have a 1-month or less time frame. MSTY also sells put options. The fund primarily uses synthetic call spreads to take a long position in MSTR and generate monthly income. MSTY’s income is a return on capital that is taxed at ordinary income levels. President Trump has been very outspoken on the need to incorporate bitcoin and other cryptocurrencies into the US financial system , and Trump has put a Treasury Secretary and SEC Chairman in place who are bullish on bitcoin and other digital currencies. When Fed chairman Powell’s term is up in 2026, the President will also likely choose a new person to lead the central bank who is more aligned with him on policy, including with cryptocurrencies. The economic outlook also appears to be stabilizing more , with Trump reaching trade agreements with countries such as England, and US-Chinese trade talks showing signs of progress. While bitcoin is very volatile, sell-offs are likely to remain more muted for the time being with the current more favorable conditions. Trump’s family is involved legally in cryptocurrencies, his son Eric is the chief strategy officer of American Bitcoin, and the President has made clear this family is a significant part of the team advising him. The long-term case for crypto remains strong as well , with the economy becoming more digital, inflation, and authoritarian governments in countries such as China and Russia. Demand for cryptocurrencies should remain solid. MSTY’s monthly payouts have also been at more consistent levels over the last 5 months. MSTY’s Distribution History (Stockanalysis.com) While this fund’s range of distributions is still slightly more volatile than most covered-call investments, as expected, these payouts have been within a much tighter range since the beginning of this year, from $1.33 to $2.38 a share. This change over the last 5 months also indicates the fund’s managers are likely improving the options strategy used to make the regular income MSTY offers more standardized. All investments theses have risks, and MSTY will perform well when MSTR is rising or range bound , but because the ETF is selling off much of the amount of the upside in the underlying equity while retaining significant downside risks, this investment is a higher-risk fund because of how volatile bitcoin is. The cryptocurrency has both risen and fallen 40 percent in less than a month at times during the past 3 years. MSTR’s standard deviation from February to May of this year is 49.93. While MSTY has risen and paid out significant income since the fund’s inception last year, bitcoin has performed very well during this time period This ETF’s inability to track most of the upside of MSTR still shows the construction of this investment shows the fund would likely struggle more during sell-offs than most covered call funds. MSTY has underperformed MSTR by nearly 146 percent since the fund’s inception in February 2024. The leverage used by the software company adds an additional layer of volatility to this investment since MSTR issues debt to buy Bitcoin. MSTY is designed for more aggressive income investors, this is not an ETF that will likely make sense for the average individual seeking consistent income, but despite the ETF’s risks, markets have normalized, and the regulatory environment has become and is likely to remain more favorable for bitcoin and other cryptocurrencies. While Trump being in office is not a put option on cryptocurrencies, the President’s words and actions should provide support to the market when these digital assets face significant pressure.

Source: Seeking Alpha