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Wall Street investors are piling up their bets against the cryptocurrency market as a harsh crypto winter takes over the market. More and more market participants open short positions (shorts), that is, borrow shares of companies, which are then sold on the open market with the expectation of buying them out later on the cheap. Such investors and traders have amassed positions against publicly traded shares of cryptocurrency-related companies. In June, their short interest grew by 13%.
Short Positions on Crypto-Related Stocks Are Growing
Coinbase, the largest and only public crypto exchange in the US. Its shares sold down by $291 million increased this month, bringing the share of short positions as a percentage of shares outstanding to 20.97%, according to S3, a financial data analyst firm.
Michael Sailor’s MicroStrategy has accumulated huge reserves of Bitcoin on its balance sheet. Currently, 41.82% of its outstanding shares are open in short.
And short interest in Marathon Digital shares rose 9.84% in June to 25.22% for a Bitcoin mining company.
“There has not yet been a capitulation in the short selling market,” says Igor Dusanivsky, managing director of S3 Partners.
In a bear market — especially one that follows a decade-long period of growth when, with the exception of the COVID-19-induced sell-off in late spring 2020, stocks of all kinds have skyrocketed — there should always be plenty of opportunity for short sellers. In fact, a recent S3 report shows that as of mid-June, short positions are up 54% on media and entertainment stocks since the beginning of 2022. Shorts on shares of companies engaged in software and services jumped by 50%. According to S3, in the sector of cars and components, shorts grew by about 54%.
However, the cryptocurrency stands apart in this series.
The market’s decline could have been slow at first, with the prices of cryptocurrency-related tokens and stocks falling along with other more traditional assets such as technology stocks and IPOs. But over the past few months, the fall of cryptocurrencies has intensified against the backdrop of how the Federal Reserve has stepped up its fight against inflation, and fears of the spread of negative expectations throughout the crypto universe. The global value of the cryptocurrency is now around $900 billion, up from $3 trillion seven months ago.
According to Dusanivsky, as of June 21, short positions of sellers on 15 cryptocurrency stocks tracked by S3 are up 118% since the beginning of the year. The resulting surge in interest in short sellers was so rapid and furious that the number of stocks available to investors to borrow and sell quickly evaporated. Of the crypto-related companies tracked by S3, 95% of the available securities available for lending have already been transferred to short sellers, meaning it will be harder for investors to open short positions in crypto stocks.
But there are other options for those who doubt the cryptocurrency: On June 22, ProShares, an exchange-traded fund manager who was the first to register an ETF in the US to track Bitcoin futures (ticker symbol – BITO), launched a related product offering investors the opportunity to open short positions in Bitcoin futures. This ETF is called the ProShares Short Bitcoin Strategy ETF, or BITI for short. Volumes in the BITO ETF have been lower recently compared to its launch last fall, but BITO was one of the biggest ETF debuts ever. BITI also offers an easier way to short Bitcoin, which is readily available on brokerage apps like Robinhood, Fidelity, and Interactive Brokers — meaning it won’t just involve professional investors.
“We know that there are many investors who treat Bitcoin from a bearish perspective,” said ProShares CEO Michael Sapir. “But other ways of short-term access to Bitcoin can be complex and expensive. With BITI, we give investors a convenient and cost-effective way to put their bearish opinion of Bitcoin into practice by buying an ETF with a ticker from a regular broker through their account.”
“After all, there are many other ‘red flags’ in cryptocurrencies that are sure to be revealed in the coming months,” he said.
says Nate Anderson, a short-selling activist who has been at the forefront of critics over the once-high share growth of electric car maker Nikola back in 2020.
For Anderson, who has “small” short positions at Coinbase and MicroStrategy, the fall of cryptocurrencies has always been a matter of when, not if, given what the founder of Hindenburg Research says are the market’s main concerns:
“Fundamentally flawed designs, fraud and excessive leverage.”
Author: Elvir, Analyst Freedman Club Crypto News
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