In a bold move, short sellers are wagering a whopping $11 billion against the recent rally of cryptocurrency-related stocks, fueled by Bitcoin’s significant uptick this year. According to a recent analysis by S3 Partners LLC, the majority of these bets are targeting MicroStrategy Inc. and Coinbase Global Inc., making up over 80% of the total short interest within the sector.
Despite Bitcoin’s impressive 65% surge year-to-date lifting the entire crypto stock sector, short sellers have experienced nearly $6 billion in paper losses. However, rather than retracting, these traders are doubling down on their positions, anticipating a downturn in Bitcoin’s rally or leveraging these short positions as a hedge against actual Bitcoin holdings.
MicroStrategy has become a primary focus for short sellers, who have injected an additional $974 million betting on the software company’s decline, despite its share price increase. This aggressive strategy has made MicroStrategy one of the most shorted stocks in the U.S. market, placing it in the league of tech giants like Nvidia Corp., Microsoft Corp., and Apple Inc.
However, this high-stakes game comes with risks for the short sellers, especially if the market does not turn in their favor. The report by S3 Partners highlights the potential for short squeezes in companies like MicroStrategy, Coinbase, and Cleanspark Inc. Such squeezes could force short sellers to buy back shares to cover losses, potentially driving prices even higher and exacerbating the short sellers’ predicament.
So far, MicroStrategy’s shares have skyrocketed nearly 200% this year, with Coinbase and Cleanspark also posting significant gains of about 60% and 115%, respectively. These figures underscore the volatile and unpredictable nature of cryptocurrency-related stocks, offering both high risks and high rewards for traders on both sides of the bet.
