Financial technology company S3 Partners’ data shows that traders who have shorted stocks of cryptocurrency-related companies have accumulated paper losses of up to $6 billion so far this year. The 290% surge in Coinbase stock has caused the most pain for investors shorting the cryptocurrency industry.
Short sellers of cryptocurrency stocks facing huge losses
According to Bloomberg, the rapid rise of Bitcoin in 2023 has led to losses for investors shorting cryptocurrency-related company stocks. S3 Partners’ data shows that traders betting on the decline of stocks of cryptocurrency-related companies such as Coinbase Exchange, MicroStrategy, and mining company Marathon have accumulated paper losses of up to $6 billion so far this year.
Bitcoin’s over 165% surge this year has driven the uptrend in cryptocurrency-related stocks, which are highly correlated with digital asset prices. Expectations for further regulatory clarity and the imminent launch of a US Bitcoin spot ETF have also boosted the industry, but this optimism has increased the likelihood of a short squeeze, where the uptrend forces short sellers to buy back their bet stocks to exit their losing positions, further pushing up stock prices.
Ihor Dusaniwsky, Managing Director of S3 Predictive Analytics, stated in a report on December 5th:
Reportedly, Coinbase has caused the most pain for investors shorting the cryptocurrency industry, with the company’s stock surging 290% this year resulting in approximately $3.5 billion in losses, more than half of the total losses so far this year. MicroStrategy’s stock has surged over 300% this year, adding $1.4 billion in losses for cryptocurrency short sellers.
New “short army” continues to enter the market
Despite increasing losses for short sellers, some bears continue to inject more funds into reverse trades, betting that the uptrend will soon lose steam. According to S3 data, there have been nearly $700 million in new short trades since Bitcoin bounced back from a series of losses in mid-September.
However, if Bitcoin continues to rise and drives up the prices of cryptocurrency-related stocks, this situation is likely to reverse, leading to approximately $2.2 billion in short covering so far this year in the industry. Dusaniwsky noted: