Crypto

Short sellers are betting big money on the demise of cryptocurrencies

  • Crypto contagion has spread to equities with exposure to digital assets
  • Short interest for multiple top crypto stocks has peaked this month

Equity traders looking to profit from falling cryptocurrency prices took aim at major digital asset players this week, with Coinbase and MicroStrategy among the hardest hit.

Short sellers on Monday bet more than $631 million, cumulatively, on the continued decline of the top six crypto stocks, accounting for 39% of their collective trading volume for the day.

Crypto spot markets lost 16% over the weekend, suggesting that short sellers had eagerly awaited the opening of equity markets to capitalize on the chaos.

Major US cryptocurrency exchange Coinbase took the brunt of the ire, facing shorts of $393 million on Monday, 74% above its yearly average, according to FINRA data compiled by Blockworks. FINRA tracks volume on both the NYSE and Nasdaq, but its data excludes private markets and could count shorts that don’t specifically convert to an open short.

On the same day, Coinbase said it would lay off almost a fifth of the staff – more than 1,000 employees. Chief Executive Brian Armstrong cited a possible recession in the United States. Coinbase shares have since fallen 16% from Friday’s close.

Also on Monday, short sellers bet $124 million against MicroStrategy, the data intelligence firm run by bitcoin bull Michael Saylor.

MicroStrategy stock, on average, was shorted $70 million daily over the past year, meaning there were 77% more MicroStrategy shorts on Monday than usual. Shares of the tech company are now down 25%.

MicroStrategy holds the largest corporate bitcoin reserves of any public company, holding 129,218 BTC as of April, currently worth $2.7 billion. The company’s market capitalization is just $1.8 billion.

New York-based Signature Bank saw a brief surge even higher. Through its crypto-specific Signet service, Signature oversees $29 billion in crypto deposits (as of May), including $7 billion in stablecoins. Market participants, including exchanges, miners, funds, and fiat-backed stablecoins such as Circle’s USD Coin (USDC) and TrueUSD, all bank with Signature.

Short sellers initiated about $53 million in bets against Signature Monday, 82% above their annual average. The company’s shares plunged 20%.

Short sales volume during the last year | Data Source: FINRA via TradingView

The mounting losses come despite the bank having “virtually zero credit risk” through its cryptocurrency operations, as its balance sheet of digital assets is made up almost entirely of deposits, according to a recent analysis.

Its rival Silvergate, on the other hand, on Monday only saw 14% more shorts than average, or about $24 million. Silvergate oversaw around $15.8 billion in assets under management as of March 31, the most recent data available, making the company one of the largest crypto banks.

In February, the firm spent $182 million to acquire assets and technology once intended to power Meta’s failed stablecoin offering, Diem. Its share price is also down 20% since Friday’s close.

Interestingly, crypto mining stocks were not targeted to the same extent. United States-listed outfits Marathon Digital and Riot Blockchain booked $27 million and $10 million shorted on Monday, respectively, both significantly below their annual daily averages of $53 million and $67.5 million.

Short Sellers Could Target Crypto Mining Stocks Next

Short-sellers may not yet focus on major miners, as those companies are, at least in theory, large enough to acquire new mining rigs and electricity sources relatively cheaply, he said. to Blockworks the bitcoin mining consultant Alejandro De La Torr.

It could put some public crypto miners in a better position than some of their smaller, unlisted counterparts, at least in the short term. Todd Esse, co-founder of bitcoin mining fund HashWorks, told Blockworks that he expects short-term sellers to target certain vulnerable mining stocks in the future.

In any case, short interest, a measure of how many outstanding shares are attributable, as nearly all of these shares are now at yearly highs, according to data from quantX, a finance and blockchain analytics startup.

MicroStrategy’s short interest reached 30% in May (3.4 million shares of 11.30 million outstanding), but has since declined slightly. Signature Bank’s shorts have increased: its short interest is up 60% month over month, now at 2.57 million shares out of nearly 63 million outstanding.

“Pure bitcoin gaming is down slightly in short-term interest, while broader crypto gaming is soaring this month,” said quantX co-founder Oisin Maher. Short-term interest in the US-listed shares of crypto asset manager Voyager Digital, in particular, soared 600% in June, while that of Galaxy Digital has been growing steadily throughout the year.

Coinbase short interest over the past year | Source: quantX via Bloomberg Terminal

Major crypto stocks have already booked more short volume in June than they did last September, when Bitcoin was worth more than double its current price.

Still, FINRA data shows much more betting on cryptocurrency’s demise last month, in which the Terra ecosystem imploded and the Celsius lending platform began to falter.

In fact, in total, over $11 billion worth of short positions were opened against Coinbase, MicroStrategy, Signature, Silvergate, Marathon, and Riot in May, with nearly 70% raised on Coinbase.

Short sellers only booked more bets against these crypto stocks at another time during the past year; More than $19 billion was shorted in October and November combined, when Bitcoin was pulling back from its all-time high of $69,000.

The total value of all cryptocurrencies has plummeted 65% since then, indicating some very happy short sellers. Recent data shows that they have raised nearly $4 billion by shorting crypto stocks this year.


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  • david canellis

    blocks

    Editor

    David Canellis is an Amsterdam-based editor and journalist who has covered the cryptocurrency industry full-time since 2018. He is heavily focused on data-driven reporting to identify and map trends within the ecosystem, from bitcoin to DeFi, cryptocurrency stocks to NFTs and more. Contact David by email at davi[email protected]

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