126% return for stock market short sellers who smelled blood in crypto waters

Short sellers have made a killing in various sectors of the US stock market this year, but no other sector “had a candle” for the blockchain industry, with company short sellers gaining crypto that increased 126% in 2022, according to new data.

On Thursday, data analytics and technology firm S3 Partners released a video summarizing its recent report, which found that overall U.S. stock short sellers rose on average more than 30% over the year. .

Some of these earnings gains were attributed to short selling auto and component stocks (up 54%), software and services stocks (up 50%), media and entertainment stocks (up 46%) and retail stocks (up 46%). ) for the year, though all of this paled in comparison to crypto stocks, which posted a 126% increase in short-selling profits in 2022.

“But none of these industries compare to short sellers in the crypto sector, 126% higher with an average short interest of $3 billion.”

Crypto stocks with the highest short interest include exchange Coinbase Global (COIN), Bitcoin miner Marathon Digital Holdings (MARA), and MicroStrategy (MSTR), a software company that is also known to be the largest Bitcoin holder in the world. traded.

Short selling occurs when an investor borrows a security and sells it on the open market with the expectation of buying it back in the future for less, keeping the difference. This is profitable when prices go down.

Short interest is the total number of shares of a particular stock that investors have shorted but have not yet been hedged or liquidated. High or rising short interest could indicate that investors are bearish about a certain stock.

At the time of writing, shares of Coinbase are down 79.67% YTD, Marathon Digital is down 80.02% YTD, and MicroStrategy is down 71.10% YTD, according to Google Finance. .

However, S3 Partners says that while the pace of cryptocurrency shorting has remained high, with $71 million of new short sales over the time period, the pool of stocks available to borrow is running low. , meaning “potential short sellers may be late to the party.

“With 91% utilization of equity borrowers, short sales in size can be difficult to execute, and loan fees can make new and existing short sales expensive.”

Utilization is measured by the number of shares borrowed divided by the shares available in the securities lending market, with a high utilization rate indicating that demand for shares by short sellers is high.

On Tuesday, S3 Partners Predictive Analytics CEO Ihor Dusaniwsky told his 82,000 Twitter followers that Coinbase short interest reached $1.52 billion on June 14, while MicroStrategy short interest reached $1.52 billion. 689 million dollars. Marathon Digital Holdings short interest amounted to $181 million.

Related: More Downside Expected, But Multiple Data Points Suggest Bitcoin Is Undervalued

The fall in crypto stock prices is accompanying the fall in cryptocurrency prices and the fall in traditional markets amid sharp increases in interest rates and high inflation.

On Thursday, the price of Bitcoin fell to $20,205 as rumors surfaced of a potential collapse of crypto hedge fund Three Arrows Capital (3AC).

Recent price movements have led some analysts to believe that a very long period of consolidation and accumulation is ahead for the crypto market.