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Investor bets on crypto-related stocks have soared this year, with MicroStrategy (NASDAQ:MSTR), the largest corporate holders of Bitcoin (BTC-USD) are at significant risk of a short squeeze, financial data provider S3 Partners LLC said this week.
Bitcoin (BTC-USD) is the most popular cryptocurrency. It has soared more than 58% this year, joining the rally alongside other major digital tokens such as Ether (ETH-USD), Cardano (ADA-USD), Solana (Sol – US dollar), Dogecoin (Doge-USD).
MicroStrategy (MSTR), Coinbase Global (Nasdaq:coin), and CleanSpark (NASDAQ:CLSK) also recorded significant gains.
S3 Partners noted in a report on Monday that short interest in the crypto sector will reach approximately $10.7 billion in 2024, an increase of approximately $3.7 billion since the beginning of the year.
Ihor Dusaniowski, managing director at S3 Partners, said: “Short sellers of crypto stocks are either looking for a rebound in Bitcoin's rise, or are using their short positions as a hedge against their actual Bitcoin holdings to capitalize on the uptrend. It's on sale,” he said.
Year-to-date short interest gains consist of approximately $4 billion in appreciation in the value of shorted crypto stocks, led by MicroStrategy (MSTR), Coinbase Global (COIN), and Cleanspark (CLSK). Meanwhile, an increase in short covering (particularly COIN) of $302 million partially offset the impact.
“These crypto-related stocks are highly crowded and highly susceptible to stress compared to the U.S. market,” S3 Partners wrote. The company noted that these stocks' proprietary metrics, Crowd Score and Squeeze Score, were 57.34 and 78.69, respectively, compared to the street averages of 32.41 and 34.41.
“For trades that are risk positions, the more unprofitable shorts within sectors such as MSTR, COIN, and CLSK are likely to be squeezed,” Dusaniwski added.
