Short bets on MicroStrategy stock hit $7 billion

Several institutions continue to hold large short positions in Michael Saylor’s software intelligence firm, MicroStrategy, amounting to around $7 billion. The number of short sellers has almost tripled in the past six months.

As of June 6, MicroStrategy is listed with 18 short positions on investment research firm Fintel’s “The Big Shorts” list, which tracks the largest short positions disclosed by institutions to the U.S. Securities and Exchange Commission (SEC).

The biggest short position in MicroStrategy is $2.4 billion, making it the 27th largest net short position among institutions, just over a billion less than Amazon’s highest net short position of $3.59 billion. The largest net short position in the U.S. is on the SPDR S&P 500 Trust ETF, amounting to $114.06 billion.

In October 2022, MicroStrategy’s stock hit a peak “days to cover” ratio of 5.80 days. This ratio, which indicates the average number of days short sellers need to close their positions, has since decreased by nearly 50%, from 3.1 days to 1.5 days over the past six months. This reduction suggests a marked decrease in short-seller confidence.

This surge follows a period of pressure from the crypto-skeptic investment firm Kerrisdale Capital, which questioned the value of trading MicroStrategy shares for Bitcoin exposure following the approval of several spot Bitcoin ETFs in 2024. Kerrisdale argued in a March 28 analyst note that “The days when MicroStrategy shares represented a rare, unique way to gain access to Bitcoin are long over.”

Earlier in April, short sellers betting against MicroStrategy lost $1.92 billion as the stock rally was supported by the growing mainstream acceptance of bitcoin.

In addition to MicroStrategy’s losses, traders shorting other key players in the cryptocurrency market, such as Coinbase (COIN.O) and bitcoin miner CleanSpark (CLSK.O), also lost $593.50 million and $106.40 million, respectively.

Since Saylor’s initial investment in Bitcoin in 2020, the cryptocurrency’s value has soared by 675. Despite this wave of optimism, the crypto sector remains a target for short sellers. The short interest in nine top crypto-related companies stands at 16.73% of their total outstanding shares, which well higher than the U.S. stocks average.

Short selling is the practice of selling borrowed shares with the hope of repurchasing them at a lower price to pocket the difference. It continues to be a prevalent strategy in the crypto market despite recent losses experienced by those betting against its leading companies.