Short sellers lose $1.92 billion as MicroStrategy stock rallies

Short sellers betting against MicroStrategy (MSTR.O) lost $1.92 billion since March 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), have also faced substantial losses, totaling $593.50 million and $106.40 million, respectively.

MicroStrategy reported holding nearly 190,000 bitcoins by the end of 2023. The company’s aggressive bitcoin acquisition strategy was further demonstrated through the sale of convertible debt twice in a single week last month to raise funds for additional purchases.

MicroStrategy’s stock premium is largely driven by investors seeking bitcoin exposure, particularly those who find it difficult to invest directly in the cryptocurrency or its ETFs.

Since Saylor’s initial investment in Bitcoin in 2020, the cryptocurrency’s value has soared by 675%, contributing to a remarkable resurgence in MicroStrategy’s stock price. The company’s market capitalization now stands at around $25.7 billion, surpassing its previous peak in March 2000. The price of Bitcoin hit a new all-time high of around $72,000 last month.

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.

Furthermore, the SEC’s recent approvals of spot bitcoin ETFs do not necessarily indicate a broader acceptance of crypto-related financial products, such as spot ethereum ETFs. Insights from Reuters suggest that the SEC’s decisions are not reflective of a change in the commission’s stance towards the crypto sector.

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.