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Short Sellers Risk Billions on Crypto Stocks as MicroStrategy's Overvaluation Triggers 14% Drop
Kerrisdale Capital, a notable short seller, has taken a position against $Strategy (MSTR.US)$, initiating a short sale due to its belief that the stock's value is overly inflated — it's not worth paying over double for essentially the same asset (bitcoin). As a result, MicroStrategy's stock dropped by up to 14% on Thursday. Kerrisdale also noted that MicroStrategy no longer offers a unique method for investing in bitcoin. While betting against MicroStrategy, Kerrisdale is simultaneously taking a long position on bitcoin itself (BTC).
Shares of MicroStrategy have soared amid a recent rise in the price of bitcoin, but as is often the case with crypto, things have gotten carried away."
Unreasonable Valuation
The report argues that the factors contributing to the attractiveness of MicroStrategy's stock do not warrant its high valuation, which is more than double the actual value of the bitcoin it holds. MicroStrategy, a software developer, has a business model that primarily involves acquiring and holding bitcoin. The company's bitcoin holdings, totaling approximately 214,246 tokens, make up most of its valuation and account for over 1% of all bitcoins that will ever be in circulation.
Despite MicroStrategy's market capitalization being around $28 billion, the value of its bitcoin assets is estimated at $15.2 billion. The report highlights that MicroStrategy's share price suggests a bitcoin value of $177,000, which is two and a half times higher than the actual market price of the cryptocurrency.
Short Sellers Wager Billions Against Crypto Stock Rally
Short sellers are steadfast in their bets, with nearly $11 billion invested against cryptocurrency-related stocks, anticipating that the current Bitcoin-led rally will fade. Data from S3 Partners LLC shows that short interest in the sector has escalated this year, with the majority targeting MicroStrategy and $Coinbase (COIN.US)$. Despite incurring paper losses of close to $6 billion due to Bitcoin's over 65% increase this year, which has boosted related stocks, these bearish investors are not relenting and continue to hold their positions.
Crypto stock short sellers have been selling into a rallying market – either looking for a pullback in the Bitcoin rally or using the short positions as a hedge versus actual Bitcoin holdings."
Short sellers face the risk of increased losses if their wagers against stocks linked to cryptocurrencies turn out to be wrong. These stocks, including MicroStrategy, Coinbase, and $CleanSpark (CLSK.US)$, are candidates for short squeezes. This is when short sellers are forced to purchase shares to cover their positions, driving the stock prices even higher and putting more pressure on other bearish traders. All three companies have seen significant surges in their share prices this year, with MicroStrategy climbing almost 170%, and Coinbase and Cleanspark rising about 52% and 92.3%, respectively. The S3 report also notes a scarcity of shares left to short, which could exacerbate the squeeze.
Source: Bloomberg, YahooFinance
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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MicroStrategy Q4 2024 earnings conference call
sh88win99 : hahaha
Mynor Garcia : Wow, I would not take this article serious. Lmao, I'm ready to catch that MSTR pump coming Monday, and take that paper and turn into actual money. $Bitcoin (BTC.CC)$
$Strategy (MSTR.US)$
tinybird : yada yada
BelleWeather : This coming from a guy whose current record stands at 39% accuracy with a -28 USD average on his trades. He clearly doesn’t understand leverage in this case. There are ad hominem attacks against him as well. Bullish for MSTR!
Bird007 BelleWeather :![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
Shroomie BelleWeather : did you take profit in the upper 1900s?
Mynor Garcia : Lol, yep. I'm taking these gains that will play out today and I'm buying $Strategy (MSTR.US)$ for Monday. Bet on it, baby. I could still be wrong but I've already managed to repeat the same move multiple times. Not on MooMOo though, use Cash app for BTC and MSTR, ain't got time to wait that money it's gotta be super liquid to catch it right.
BelleWeather Shroomie : At that point, I was down to my hold forever shares. I got out in the upper 1800’s for my trading shares, though, on a $100 cost basis (approximately,) so a total win.