The Bitcoin-holder Strategy (MSTR) stock market is among the most “very short,” a market slang term for the dominance of bearish plays, according to data from FactSet and Goldman Sachs. However, according to some observers, the positioning may not reflect investors’ bias towards a continued decline in prices.
According to the report released last week, bearish short bets on Strategy (MSTR) were equal to 14% of its $34 billion market cap at the time, making it the most shorted stock by that measure. Cryptocurrency exchange Coinbase (COIN) ranked fourth with 11% of its market capitalization. The report tracked positioning on stocks with a market capitalization of more than $25 billion.
This comes as Strategy has an unrealized loss of approximately $7 billion on its bitcoin holdings. That figure, however, has no impact on the stock in the short term. Strategy began adding BTC to its balance sheet in 2020 and has since gobbled up 717,722 BTC, worth $47 billion. At the time of writing, its market capitalization was approaching $42 billion, even though the stock is down 20% so far this year.
One explanation for the high short interest offered by analysts is base trading, a strategy that seeks to profit from the price difference between two related markets. In this context, traders can buy bitcoin spot ETFs, such as BlackRock’s IBIT, and at the same time short MSTR shares. benefit from a reduction in MSTR’s premium on its BTC holdings, plus any paired futures funding if they overlap, while remaining market neutral.
“I suspect that much of this short interest is still MSTR/BTC-based trading. Jane Street, in particular, has recently acquired a notably large IBIT position,” said Brian Brookshire, a specialist in bitcoin treasury companies.
According to recent 13F filings, Jane Street purchased more than 7 million shares of BlackRock’s iShares Bitcoin Trust. He also held an important position at MSTR.
If Brookshire’s instincts hold, Jane Street’s IBIT purchases could be part of the carry/base trade, along with short positions in MSTR.
So far this year, that trade would not have worked. The MSTR-IBIT ratio has increased by approximately 12%, meaning that MSTR has outperformed IBIT to the downside. MSTR is down 20% so far this year, while IBIT is down 27%.
