MicroStrategy Leads Crypto Sector Shorts to $2 Billion Losses Since March

Short sellers targeting MicroStrategy (NASDAQ:MSTR) have faced significant losses, totaling $1.92 billion since March, as per data from S3 Partners. This underscores the impact of a rally that has propelled the stock’s performance beyond that of bitcoin.

The approval of several spot bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) in January has brought the once-nascent asset class closer to mainstream adoption.

Traders betting against crypto exchange Coinbase (NASDAQ:COIN) and bitcoin miner CleanSpark (NASDAQ:CLSK) have also suffered losses, with figures amounting to $593.50 million and $106.40 million, respectively, according to the data.

MicroStrategy held nearly 190,000 bitcoins on its balance sheet as of the end of 2023 and has expressed intentions to further increase its exposure to the cryptocurrency. The company recently sold convertible debt twice within a week to raise funds for purchasing more Bitcoin.

Analysts at BTIG noted in an April report that the premium for MicroStrategy is driven by investors seeking exposure to bitcoin who may not have direct access to the cryptocurrency or ETFs. The company’s ability to raise capital for expanding its bitcoin holdings is viewed positively by shareholders, the brokerage added.

Despite the recent optimism surrounding certain crypto-related stocks, short interest in nine of the most closely monitored companies in the crypto space remains high, standing at 16.73% of the total outstanding shares, which is more than three times the average in the United States.

The SEC’s discomfort with crypto persists, and its approval of spot bitcoin ETFs may not necessarily indicate a willingness to embrace similar products, such as spot ethereum ETFs, Reuters has reported.

Alan Konevsky, chief legal and corporate affairs officer at online investment platform tZERO, remarked that the decision on spot bitcoin ETFs does not signal a change in philosophy at the Commission and may not lead to further favorable decisions.

Short sellers engage in selling borrowed shares with the expectation of buying them back at a lower price later, thereby profiting from the price difference.

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