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Investor bets against cryptocurrency-related stocks have surged this year, and MicroStrategy (NASDAQ:MSTR), the biggest corporate 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 highest-profile cryptocurrency, has soared past 58% this year, joining a rally alongside other major digital tokens such as ether (ETH-USD), cardano (ADA-USD), solana (SOL-USD), and dogecoin (DOGE-USD).
Crypto-linked stocks, including MicroStrategy (MSTR), Coinbase Global (NASDAQ:COIN), and CleanSpark (NASDAQ:CLSK), have also recorded substantial gains.
Short interest in the crypto sector reached ~$10.7B in 2024, marking a ~$3.7B rise year-to-date, S3 Partners pointed out in a report on Monday.
“Crypto stock short sellers have been selling into a rallying market—either looking for a pullback in the Bitcoin rally or using the short positions as a hedge versus actual Bitcoin holdings,” S3 Partners’ Managing Director, Ihor Dusaniwsky, said.
The YTD gain in short interest was made up of ~$4.0B mark-to-market gains in the share prices of the shorted crypto stocks led by MicroStrategy (MSTR), Coinbase Global (COIN), and Cleanspark (CLSK). Meanwhile, $302M in increased short covering - notably in COIN – partially offset the impact.
“These crypto-related stocks are extremely crowded and very squeezable relative to the U.S. market,” S3 Partners wrote. Crowded score and Squeeze score, two of its proprietary metrics for these stocks, stand at 57.34 and 78.69 compared to the Street average of 32.41 and 34.41, respectively, the firm pointed out.
“For the trades that are risk positions, there is a strong squeeze possibility in the more unprofitable shorts in the sector like MSTR, COIN, and CLSK,” Dusaniwsky added.
