The significant losses of around US$6 billion among short sellers of crypto stocks suggest a scenario where the value of the underlying assets has risen, causing losses for those who bet on a decline in stock prices. Short selling involves borrowing and selling assets with the expectation of buying them back at a lower price.
In the context of crypto stocks, factors such as positive market sentiment, increased adoption of cryptocurrencies, and favorable regulatory developments can contribute to rising stock prices, causing losses for short sellers.
This dynamic underscores the volatility and unpredictability of both cryptocurrency markets and related stocks. Investors, including short sellers, should be cautious and stay informed about market trends, regulatory changes, and broader economic factors that can influence the performance of crypto-related stocks.
2023 is a recovery period for the crypto market after experiencing difficult times in 2022.
So far this year Bitcoin has recorded a 164% price increase and overtaken the valuations of Meta and Berkshire. BTC price also returned to the US$44,000 level last seen 19 months ago.
This surge has not only strengthened the cryptocurrency itself but has also had a positive impact on related crypto stocks such as Coinbase and MicroStrategy. These shares each grew more than 200%.
On the other hand, this rise in Bitcoin and crypto stock prices creates losses for short sellers, especially in the stock market. Analysis from Ihor Dusaniwsky and Matthew Unterman of S3 Partners provides a comprehensive view of this dynamic sector.
Bitcoin’s rise of more than 60% in the last 90 days caused losses for short sellers. In total, short sellers in crypto stocks have lost at least US$6 billion in shares of publicly traded companies such as Coinbase, MicroStrategy and Marathon Digital.
Crypto Stocks Make Short Seller Losses the Most
Coinbase has been the most unsuccessful trade for the short sellers, with a nearly 290% rise in the company’s share price resulting in a loss of over US$3.5 billion for them.
Furthermore, MicroStrategy’s growth has caused short sellers to lose more than US$1.7 billion. These numbers underscore the high stakes and volatility inherent in the crypto stock market.
Despite the losses, there was a notable short-covering trend throughout 2023, with short sellers covering their positions, amounting to US$2.19 billion.
Then, since Bitcoin’s bull run in mid-September, US$697 million worth of new short positions have been added, indicating that some short sellers are still betting against the ongoing rally.
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