Short Sellers Doubting the Rally in Cryptocurrency-Linked Stocks

Short sellers are still betting billions of dollars that the rally in cryptocurrency-linked stocks fueled by the surge in Bitcoin will eventually end. The total short interest in crypto stocks has reached nearly $11 billion this year. Over 80% of total short interest is against MicroStrategy Inc. and Coinbase Global Inc.

Growing Paper Losses and Persistent Short Positions

Despite the year-to-date 65% run for Bitcoin and the mounting paper losses of nearly $6 billion, short sellers are doubling down on their positions. Ihor Dusaniwsky, managing director of S3, mentioned that short sellers have been selling into a rallying market to either anticipate a Bitcoin pullback or hedge against their Bitcoin holdings.

Short traders have recently increased their positions against crypto-linked stocks, mainly in MicroStrategy. This is despite the shares climbing, with $974 million poured into bets against the enterprise software maker. Short covering has been observed in shares of Coinbase, Marathon Digital Holdings Inc., and Hive Digital Technologies Ltd.

MicroStrategy’s Increasing Short Interest and Short Squeeze Risk

The surge in short interest has taken MicroStrategy's total float to more than 20%, making it one of the most-shorted stocks in the US market. While there is potential for more pain ahead for short sellers, names like MicroStrategy, Coinbase, and Cleanspark Inc. are all poised for a short squeeze due to their rally and limited shares available to short.

According to the S3 report, MicroStrategy has witnessed an increase of almost 200% year-to-date, while Coinbase and Cleanspark have seen gains of around 60% and 115%, respectively.