Today’s soaring ascent of Bitcoin has left short sellers of crypto-related stocks reeling, with collective mark-to-market losses nearing a staggering $1.9 billion, as revealed by data compiled by S3 Partners.
This sharp downturn for short sellers coincides with Bitcoin‘s remarkable over 7% surge in late-day trading, coupled with an almost 12% ascent from its recent low observed just three days prior.
The aggregated short interest in crypto-related stocks currently tallies at $10.7 billion, with MicroStrategy Incorporated (NASDAQ:MSTR) and Coinbase Global Inc (NASDAQ:COIN) comprising a significant 84% share of this short interest. Notably, the sector’s short interest as a percentage of float surpasses threefold the U.S. average of 5.13%.
Leading the downturn is MicroStrategy, renowned as the world’s largest corporate holder of Bitcoin, which faces a substantial $1.4 billion in mark-to-market losses. This hefty figure contributes to the sector’s overall $1.9 billion loss for the day and underscores a year-to-date loss of $5.7 billion, marking a significant -79.1% downturn for those betting against the software company. Despite these substantial losses, the sector remains a focal point for short selling activity, driven by its crowded nature and the potential for high squeezes.
With crowded scores averaging at 57.34 for crypto stocks, well above the street average of 32.41, and squeeze scores averaging at 78.69, significantly surpassing the street average of 34.41, companies like MicroStrategy, Coinbase, and Cleanspark Inc (NASDAQ:CLSK) emerge as particularly susceptible to squeezes within the sector.
Despite the bullish trajectory of Bitcoin, the total short interest in the sector has surged by $3.67 billion to $10.71 billion in 2024, indicating sustained skepticism or strategic hedging by short sellers. However, the recent rally has triggered a surge in short selling activity, with the sector’s total short interest rising by an additional $4.50 billion in the last 30 days, predominantly fueled by intensified short selling in MicroStrategy.
As MicroStrategy’s stock price continues to climb, short sellers face mounting pressure, potentially leading them to repurchase shares to cover their losses, thus propelling the stock price even higher in a classic short squeeze scenario.
