Short sellers attack: Bitcoin rally in danger?

Short sellers attack: Bitcoin rally in danger?

The crypto rally, which has led to enormous price increases in recent months, appears to have stopped for the time being. At the same time, short bets against Bitcoin and other cryptocurrencies are increasing. This could indicate that troubled times are on the horizon for crypto investors. Bitcoin, which reached its record high of $73,798 on March 14, 2024, subsequently suffered losses, but was recently able to stabilize at around $69,776. Other major digital currencies such as Ether also recorded temporary price drops. These declines could benefit short sellers who are speculating on further price declines.

Research by S3 Partners LLC found that total short interest against crypto stocks has reached nearly $11 billion this year. The focus is particularly on MicroStrategy and the crypto exchange Coinbase, against which more than 80 percent of the short selling volume is directed. Other companies such as Marathon Digital and HIVE Digital Technologies are also among the short sellers' favorites.

In March, short sellers increased their positions against crypto stocks, with MicroStrategy in particular coming under scrutiny. With nearly $1 billion in bets against the company, traders placed massive short positions. The value of shorted MicroStrategy shares was $6.5 billion at the end of March, making them the most shorted stocks on Wall Street. Despite these efforts, short sellers have so far suffered nearly $6 billion in book losses due to the ongoing Bitcoin rally.

However, the massive short bets against the crypto stocks of the industry giants cannot automatically be interpreted as a sign of an impending price decline. On the contrary, these bets could also backfire, especially if the market moves against the short sellers. Some stocks, including those of Coinbase, MicroStrategy and CleanSpark, are considered particularly vulnerable to short squeezes that can cause prices to rise. Nevertheless, the potential for price declines remains high, as the extreme price increases of the last few months make a correction or at least a breather likely.

It remains to be seen how the situation in the crypto market will develop as both investors and analysts are closely following developments.