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Investor bets against cryptocurrency stocks have surged this year, and MicroStrategy (NASDAQ:MSTR), the largest holder of bitcoin (BTC-USD) is at significant risk of a short squeeze, financial data provider S3 Partners LLC said this week.
Bitcoin (BTC-USD), the most high-profile cryptocurrency, has has risen more than 58% this year, joining a rally alongside other major digital tokens like ether (ETH-USD), cardano (ADA-USD), solana (SOL-USD) and dogecoin (DOGE-USD).
Cryptocurrency-related stocks, including MicroStrategy (MSTR), Coinbase Global (NASDAQ: MONEY) and CleanSpark (NASDAQ:CLSK), also recorded substantial gains.
Short interest in the cryptocurrency sector reached $10.7 billion in 2024, marking a year-to-date increase of $3.7 billion, S3 Partners pointed out in a report on Monday.
“Short sellers of crypto stocks have been selling into a rallying market, seeking a pullback in Bitcoin’s rally or using short positions as a hedge against actual Bitcoin holdings,” said S3 Partners CEO Ihor Dusaniwsky .
The year-to-date gain in short interest consists of mark-to-market gains of approximately $4.0 billion in the share prices of shorted crypto stocks led by MicroStrategy (MSTR), Coinbase Global (COIN), and Cleanspark (CLSK). Meanwhile, $302 million of increased short coverage – particularly in COIN – partially offset the impact.
“These cryptocurrency-related stocks are extremely crowded and very compressible relative to the US market,” S3 Partners wrote. The Crowded and Squeeze scores, two of its proprietary metrics for these titles, stand at 57.34 and 78.69 compared to the street average of 32.41 and 34.41, respectively, the company pointed out.
“For trades that represent risk positions, there is a strong possibility of a squeeze on the industry’s most unprofitable short positions such as MSTR, COIN and CLSK,” Dusaniwsky added.