Short Sellers Are Betting Big Money on Cryptocurrency's Death

Short Sellers Are Betting Big Money on Cryptocurrency’s Death

  • Crypto contagion spreads to equities with digital asset exposure
  • Short interest on multiple top crypto stocks peaks this month

Stock traders looking to profit from falling cryptocurrency prices have targeted the big players in digital assets 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 six top crypto stocks, which account for 39% of total daily trading volume.

Spot crypto markets fell 16% over the weekend, suggesting that short sellers are eagerly awaiting the opening of the stock markets to capitalize on the chaos.

Leading US crypto exchange Coinbase took most of the wrath, facing $393 million in short-term sales on Monday, 74% above its annual average, according to FINRA data compiled by Blockworks. FINRA tracks volume on both the NYSE and the Nasdaq, but the data excludes private markets and may specifically count short-term trades that don’t turn into shorts.

That same day, Coinbase said it would lay off almost one-fifth of its staff, or more than 1,000 employees. CEO Brian Armstrong referred to a potential US recession. Coinbase shares are down nearly 16% since Friday’s close.

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

MicroStrategy stock has recorded an average of $70 million daily short selling over the past year, meaning it saw MicroStrategy shorts 77% more than usual on Monday. Shares of the tech company are currently down 25%.

MicroStrategy holds the largest institutional bitcoin reserve of any public company with 129,218 BTC as of April, valued at $2.7 billion today. The company’s market capitalization is only $1.8 billion.

New York-based Signature Bank has seen even greater short-term volatility. Signature manages $29 billion in crypto deposits (as of May), including $7 billion in stablecoins, through its crypto-exclusive Signet service. Exchanges, miners, funds and market participants including Circle’s USD Coin (USDC) and fiat-backed stablecoins such as TrueUSD are all Signed banks.

Short sellers launched nearly $53 million in bets against Signature on Monday, 82% higher than their annual average. The company’s shares fell by 20%.

Short selling volume over the past year | Data source: FINRA via TradingView

Increased losses despite the bank’s “virtually zero credit risk” through its crypto operations, as the digital asset balance sheet is almost entirely deposits, according to a recent analysis.

Competitor Silvergate saw just 14% more shorts than average, or roughly $24 million, on Monday. Silvergate audited approximately $15.8 billion in assets under management as of March 31, the latest data available, making the firm one of the largest crypto banks.

In February, the firm spent $182 million to acquire assets and technology aimed at powering Diem, which was once Meta’s failed stablecoin offering. The share price is also down 20% since Friday’s close.

Curiously, crypto mining stocks have not been equally targeted. US-listed Marathon Digital and Riot Blockchain recorded $27 million and $10 million worth of shorts, respectively, on Monday, both significantly below their annual averages of $53 million and $67.5 million annually.

Short sellers can target the next crypto mining stocks

Short selling specialists may not be focusing on the best miners yet because these companies are large enough, at least in theory, to get fresh mining rigs and electricity resources relatively cheaply, Bitcoin mining consultant Alejandro De La Torr told Blockworks.

At least in the short term, it could put some public crypto miners in a better position than their smaller, unlisted counterparts. Todd Esse, co-founder of Bitcoin mining fund HashWorks, told Blockworks that he expects short circuits to target certain precision mining stocks going forward.

At any rate, short interest for nearly all of these shares – a measure of how many outstanding shares can be attributed – is currently at year-on-year highs, according to data from finance and blockchain analytics startup quantX.

MicroStrategy’s short-term interest reached 30% in May (3.4 million shares out of 11.30 million outstanding), but has fallen slightly since then. Signature Bank’s deficits widened: Its short-term interest rate increased 60% month-to-month, reaching 2.57 million shares currently outstanding, with almost 63 million.

“Pure bitcoin games have dropped slightly in short interest, while broader crypto gaming has increased this month,” said QuantX co-founder Oisin Maher. In particular, short interest in crypto-asset manager Voyager Digital’s US-listed stocks exploded nearly 600% in June, while Galaxy Digital’s has been growing steadily all year.

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

Top crypto stocks have already recorded more short volume in June compared to last September when Bitcoin was worth more than double its current price.

Yet FINRA data shows much more bets on the collapse of crypto last month, which saw the Terra ecosystem collapse and the Celsius lending platform begin to falter.

Indeed, in May, more than $11 billion in total open interest was opened against Coinbase, MicroStrategy, Signature, Silvergate, Marathon, and Riot – almost 70% of which was charged on Coinbase.

Short sellers have registered more bets against these crypto stocks in just one go over the past year; In October and November together, more than $19 billion worth of shorts were opened as bitcoin pulled back from a record high of $69,000.

Since then, the combined value of all cryptocurrencies has dropped by 65% ​​– suggesting that there are some very happy short sellers out there. Recent data shows they have raised almost $4 billion by shorting crypto stocks this year.

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  • David Canellis

    block works


    David Canellis is an Amsterdam-based editor and journalist who has been covering the crypto industry full-time since 2018. It focuses heavily on data-driven reporting to identify and map trends in the ecosystem, from bitcoin to DeFi, crypto stocks to NFTs and beyond. Contact David via email at: [email protected]

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