The market for Bitcoin-holding Strategy (MSTR) stocks is among the most “heavily shorted,” a market slang term for dominance of bearish plays, according to data from FactSet and Goldman Sachs. Still, the positioning may not reflect investors’ bias against a continued price crash, according to some observers.
According to the report released last week, bearish short bets on Strategy (MSTR) equaled 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 market capitalization. The report tracked positioning in stocks with a market capitalization of over $25 billion.
This comes as Strategy is sitting on an unrealized loss of about $7 billion on its bitcoin holdings. However, that figure has no impact on the stock in the short term. Strategy started adding BTC to its balance sheet in 2020 and has since gobbled up 717,722 BTC worth $47 billion. At the time of writing, the market cap was closer to $42 billion, despite the stock being down 20% year-to-date.
One explanation for the elevated short interest offered by analysts is the basis trade – a strategy that seeks to take advantage of the price difference between two related markets. In this context, traders can buy bitcoin spot ETFs, like BlackRock’s IBIT, while simultaneously shorting the MSTR stock. to benefit from a narrowing of MSTR’s premium to its BTC holdings, plus any funding from paired futures if stacked while remaining market neutral.
“I suspect a lot of this short interest is still MSTR / BTC basis trading. In particular, Jane Street has recently acquired a conspicuously large IBIT position,” said Brian Brookshire, specialist in bitcoin treasury companies.
According to the latest 13F filings, Jane Street bought more than 7 million shares of BlackRock’s iShares Bitcoin Trust. It also had a large position in MSTR.
If Brookshire’s instincts hold, Jane Street’s purchase of IBIT could be part of the carry/basis trade, paired with short positions in MSTR.
So far this year, that trade wouldn’t have worked. The MSTR-to-IBIT ratio is up around 12%, meaning MSTR has outperformed IBIT on the downside. MSTR is down 20% year-to-date, while IBIT is down 27%.
