Strategy Stock, Inverse ETFs, and the Bitcoin Bubble
I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin'.
I see those bad times today.
Don't go around tonight,
Well it's bound to take your life,
There's a bad moon on the rise.
--John Fogerty
As part of my “fraud” series of blogs, I present a new blog about bitcoin investments. My thesis is don’t buy bitcoins and don’t try to short bitcoins or companies that act as bitcoin repositories. You may get burn at both ends of the candle.
A friend called me up the other day to congratulate me on my astute investing analysis. I had told him last Fall that bitcoin was a bubble, and just a front for fraudsters, and not investable, except as a short/inversed proposition. WelI, I got the general thesis correct – bitcoin prices have been slowly deflating – albeit the devil is in the timing details. There is an old investment saying: you can be right but just too early. Well, that applies in spades to me.
I had told my friend that I had purchased a triple inverse ETF comprising a “short bet” on a bitcoin repository company called Strategy (it used to be called MicroStrategy). They are the largest holder of bitcoins in the world. They are led by a promoter named Michael Saylor, who achieved infamous fame during the dotcom implosion of the year 2000, and whose mantra was “Never sell your Bitcoin.” The inverse ETF stock symbol I purchased was SMST and sponsored by some small investment company. It is a 2X inverse ETF used to balance the bat-shit crazy 2X positive ETF run by the same investment company. The world of double and triple single stock ETFs has bloomed as the market froth has grown, and as the Trump family tried to prop up the market to their own profit, reportedly more than $1 billion. It is a bad moon arising. Strategy is already a leveraged investment of money on top of a very speculative asset likely someday to become worthless. Strategy issues new equity, borrows money, and also issued preferred stock, and uses the proceeds to buy bitcoins. At one time, investors had bid up Strategy stock to more than twice the value of its bitcoin holdings. That is when I stepped in to short it. I have the usual trouble spotting good investments at reasonable prices, but I have less trouble spotting historically bad investments. I have made more money, at least relative to the indexes, on bear than bull market sentiment. That is just my personality.
I initially sold my inversed ETF some time ago for a pretty good profit last year. See https://www.awrcounsel.com/blog/2026/1/14/my-investment-predictions-for-2026?rq=bitcoin where I discussed it and suggested I might buy it back at the right entry point. Well, I went back into it again. However, at the start of June 2026, I looked closely at how it was doing and found that it had deviated from its index by about 150%. This was very disappointing. On the day I did my review, Strategy had gone down a significant amount. My ETF should have gone up three times that loss. Instead, the ETF also lost money. While long term deviations should be expected in these kinds of funds, daily deviation like that are a red flag. That is never supposed to happen. Long term, the ETF had underperformed its expected index return by $1.50 for every dollar you had invested in it. That is pathetic and indeed unconscionable. Some deviation, of course, is expected in these daily ETF since the price is reset daily – but a 150% deviation or so from target is really unreasonable. I became concerned that the ETF might be another bitcoin fraud. Been there done that.. Accordingly, I sold out of the position in June 2, 2026.
Well, as I sadly told my friend, here is what happened next -- over the next three or so weeks, the inverse ETF more than doubled in value. I made 10% instead of 120% if I had only waited. Like I say, timing is everything. They say buy and hold is good because trading requires you to make two good decisions – when to buy and when to sell. That decreases your odds of success.
Yesterday, Strategy was in the news again. The Company’s Board authorized the Company to sell bitcoins and use the proceeds to pay preferred investors dividends and pay off debt or buy back stock. It was just permission to do something discretionary, and not actual buying or selling of anything. The company common stock rallied on that news, which is just plain stupid. They are selling bitcoins and they are the largest holder of bitcoins so that is not good news for bitcoins. It is better news for the Company’s preferred stockholders, since the revenue can be used to pay their dividends. But personally, I think anyone who buys their preferred stock must be a moron and just hoping for a bigger fool to sell too when they exit their position.
Anyway, I am done with that clown car, and I sleep better at night as a result. There is going to be a terrible reckoning at some point in this crazy bull market. I expect to see Strategy stock lead the pack downward. But I have no appetite for screwed up ETFs being sold the public for high fees which don’t live up to their expected returns.
Postscript: I am not giving investment advice here. I think you would be a moron to buy Strategy or its preferred stock. But I also think you would be a moron to follow me blindly. Do your own due diligence or just buy index funds. I am just telling you what happened to me as a cautionary tale. You can be right and still not inherit the wind.