Short-sellers have profited from the cryptocurrency slump.
Bets on firms like Coinbase (COIN) and Microstrategy (MSTR) have proven to be profitable as cryptocurrency-related stocks have plunged during a widening meltdown in the market.
As of June 14, short-sellers in the crypto industry have made mark-to-market profits of nearly $3.8 billion, according to S3 Partners. So far this year, traders betting against crypto-related equities have made a 126 percent profit on an average $3 billion in short interest.
Traders have profited almost $3 billion betting against crypto equities so far this year, including gains of roughly $400 million on June 13, crypto’s “Black Monday.”
The crypto short-sellers’ winning run comes as major cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD) have lost more than 50% this year and have fallen to around 5-year lows this week.
According to S3 data, the most short interest was in Coinbase, Microstrategy, and Marathon Digital Holdings (MARA), with bets building up as shares of each business plummeted dramatically.
According to statistics from S3 Partners Research as of June 14, short sellers in the crypto industry were up 126 percent in 2022, with an average short interest of $3 billion.
MicroStrategy (MSTR), the largest corporate holder of bitcoin, with over 129,000 as of March 31, lost over a quarter of its market value during Monday’s sell-off, topping losses among its crypto-focused equities peers.
In June, shares of cryptocurrency exchange platform Coinbase (COIN), which was the most shorted among this group, dropped as much as 15% in a single day.
This month, shorting of these companies has increased, with $71 million in fresh short sales in less than two weeks.
While a continuing drop in cryptocurrencies and other crypto assets is predicted, anyone hoping to join the shorts’ party may be too late.
“While the negative price trend of crypto equities may not be gone, the possibility to short stock in scale may be,” noted S3 Partners study authors Ihor Dusaniwsky and Matthew Unterman.
Short sales of any size will be difficult to execute, and stock borrow rates will be increasing for both new and current short sales, they warned, with stock borrow usage nearing 91 percent.
The research states that shorting crypto companies may continue to be a lucrative strategy, but short exposure in these stocks will not expand considerably in the future owing to stock borrow scarcity, and shorting these stocks will become more expensive and take a greater bite out of predicted alpha.
Overall, short-sellers have had a strong year in 2022, with US stock short-sellers up 30% for the year as of mid-June, according to S3 statistics. Outside of crypt-related stocks, the most profitable industries to short have been automobiles and components (up 54%), software and services (up 50%), and retail (up 46%).