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Investor bets on cryptocurrency-related stocks have surged this year, and MicroStrategy (NASDAQ:MSTR) Bitcoin's (BTC-USD) largest corporate holder is at significant risk of a short squeeze, financial data provider S3 Partners LLC said this week.
Bitcoin (BTC-USD), the most famous cryptocurrency, has rose to over 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), also recorded significant increases.
Short interest in the crypto sector reached about $10.7 billion in 2024, up about $3.7 billion year-to-date, S3 Partners highlighted in a report on Monday.
“Short sellers of crypto stocks have been selling in a recovering market – either looking for a pullback in the Bitcoin rally or by using the short positions as a hedge against actual Bitcoin holdings,” said Ihor Dusaniwsky, managing director of S3 Partners .
The YTD gain in short interest was comprised of approximately $4.0 billion mark-to-market gain in the share prices of the shorted crypto stocks, led by MicroStrategy (MSTR), Coinbase Global (COIN), and Cleanspark (CLSK) . Meanwhile, increased short selling coverage of $302 million – particularly in COIN – partially offset the impact.
“These crypto-related stocks are extremely crowded and highly squeezeable compared to the US market,” S3 Partners wrote. The company noted that the Crowded Score and Squeeze Score, two of its proprietary metrics for these stocks, are 57.34 and 78.69, respectively, compared to the Street average of 32.41 and 34.41, respectively.
“Of the trades that are risky positions, there is a strong squeeze opportunity in the more unprofitable short positions in the sector such as MSTR, COIN and CLSK,” Dusaniwsky added.
More about CleanSpark, Coinbase etc.
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