Cryptocurrency Short Sellers Face $6.05 Billion in Losses
In 2023, short sellers in the cryptocurrency market experienced a challenging year, with losses totaling $6.05 billion. The surge in prices of Bitcoin and other digital currencies throughout the year contributed to these losses.
Rising Cryptocurrency Prices Impact Short Sellers
A report published by research firm S3 Partners on December 5 revealed that traders who took a bearish stance on publicly traded crypto firms such as Coinbase, MicroStrategy, and Marathon Digital faced significant losses. The price of Bitcoin alone has increased by 58% since its recent low in September and an impressive 157% year-to-date. This upward trend has resulted in mark-to-market losses for short sellers.
Short Sellers Reduce Exposure as Market Rebounds
During the first three quarters of 2023, short sellers reduced their exposure to cryptocurrency stocks as the market rebounded and the value of shorted securities rose. This led to short covering worth $2.19 billion.
Surge in Short Selling Since September
However, since September 2023, there has been a surge in short selling, totaling $697 million, as sellers increased their exposure to what they perceived as an overbought market.
Bitcoin’s Unexpected Rally Results in Losses for Short Sellers
Bitcoin experienced a surprising rally, recording a 76% increase and reaching a new annual peak of $44,313 on December 5. This unexpected surge caused short sellers to incur approximately $2.65 billion in losses.
Coinbase and MicroStrategy Contribute to Losses
Coinbase and MicroStrategy have presented significant challenges for short sellers this year. Coinbase’s impressive rally of 290% resulted in losses of around $3.5 billion, while MicroStrategy’s gain of over 300% added another $1.4 billion to the losses of crypto shorts.
Short Covering Could Rise if Bitcoin Continues to Rally
Despite the increasing losses, some short sellers continue to invest in contrarian trades, hoping for a reversal in the rally. However, if Bitcoin continues its upward trajectory, there may be a rise in short covering, which has already amounted to approximately $2.2 billion this year.
Hot Take: Short Sellers Suffer Massive Losses in 2023
Cryptocurrency short sellers had a challenging year in 2023, facing significant losses due to the remarkable performance of Bitcoin and other digital currencies. The surge in prices resulted in mark-to-market losses totaling $6.05 billion. While some short sellers reduced their exposure during the market rebound, the recent rally in Bitcoin caused substantial losses for those who remained bearish. Coinbase and MicroStrategy were particularly challenging for short sellers, contributing to the overall losses. Moving forward, short covering could increase if Bitcoin continues its upward trend. Despite the losses, some short sellers still hope for a reversal in the market.
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