Short Sellers Face Over $6 Billion in Losses Due to Bitcoin’s Rally
Short sellers in the cryptocurrency industry have suffered significant losses of over $6 billion this year as a result of Bitcoin’s remarkable surge since January. A recent report by S3 Partners reveals that traders who took short positions against publicly listed cryptocurrency companies like Coinbase, MicroStrategy, and Marathon Digital are currently facing on-paper losses amounting to $6.05 billion.
Bitcoin’s Unexpected Rally Leads to Losses for Short Sellers
The majority of these losses occurred in the past three months during a period marked by a dramatic turnaround in Bitcoin’s value. Short sellers increased their positions after Bitcoin dropped to a quarterly low of $25,133 in September 2023, expecting a downturn in the overbought sector. However, Bitcoin experienced a significant surge instead, reaching a new yearly high of $44,345 on Dec. 5. This unexpected rally resulted in approximately $2.65 billion in losses for short sellers.
The year-to-date rally of Bitcoin, which stands at 161%, has been a key factor driving up the share prices of crypto firms. Coinbase and MicroStrategy, for example, have seen their values increase by 312% and 285%, respectively, within this time frame.
Potential Spot Bitcoin ETF Approval Spurs Anticipation
Bitcoin is currently trading at $43,935, with its recent surge partly attributed to growing anticipation of a potential spot Bitcoin ETF approval in January.
Short Sellers Face Losses from Coinbase and MicroStrategy
Coinbase has played a significant role in the losses incurred by short sellers, with its 290% rally this year contributing to about $3.5 billion of the total losses. Additionally, MicroStrategy’s over 300% increase in stock value has added a further $1.4 billion to the losses.
Short Sellers Continue Contrarian Trades Despite Setbacks
Despite these setbacks, some short sellers are still investing in these contrarian trades, hoping that the rally will lose momentum. Since mid-September, there has been nearly $700 million in new short selling. However, if Bitcoin maintains its upward trajectory, this trend might reverse, adding to the approximately $2.2 billion of short covering observed in the sector this year.
Hot Take: Crypto Stocks Outperforming the Market
According to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, investors looking for crypto exposure can choose between actual cryptocurrencies or crypto stocks. If the recent momentum continues, both options are expected to outperform the market.
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