Investors have made over 100% YTD shorting Coinbase, other crypto stocks: report

Man looking at currency trading app on his smart phone from his home office

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Investors have generated profits of a whopping 126% so far in 2022 after short selling crypto-focused stocks like Coinbase (NASDAQ:COIN), MicroStrategy (NASDAQ:MSTR) and Marathon Digital (NASDAQ:MARA), according to a report by analytics and financial firm S3 Capital released on Wednesday.

Some of the other profitable industries to short sell (wager on a stock's decline) this year have been automobile & components (+54%), software & services (+50%), retail (+46%) and media & entertainment (+46%), the report said. Clearly the best move was to short crypto stocks.

Short sellers' gains from crypto equities come as the decentralized market faces intense selling pressure as investors shy away from riskier assets. Increased regulatory scrutiny as well as tighter financial conditions are also acting as major headwinds in the cryptosphere. Bitcoin (BTC-USD), the largest digital token by market cap, is dropping around 65% from its record high of $67.9K in November 2021, changing hands at $21.6K as of shortly before 5:00 p.m. ET. Similarly, ethereum (ETH-USD), the largest altcoin in terms of market value, is off nearly 70% from its all-time high of $4.72K in November a year ago.

Both Coinbase (COIN) -78.1% and MicroStrategy (MSTR) -69.3% are nosediving YTD as crypto winter sets in. S3's proprietary calculation of short interest as a percentage -- S3 SI % Float -- takes into account "synthetic" long share of every shorted share of stock. That reading was 15.1% for Coinbase and 27.5% for MicroStrategy, demonstrating poor investor sentiment. Marathon Digital's (MARA) S3 SI % Float stood at 19.7%, Riot Blockchain (RIOT) (17.42%), Hut 8 Mining (HUT) (7%), Bitfarms (BITF) (7.6%), Hive Blockchain (HIVE) (8%), Bit Digital (BTBT) (10.4%), Stronghold Digital (SDIG) (10.1%), terawulf (WULF) (4.8%), Cipher Mining (CIFR) (5.5%), BIT Mining (BTCM) (3%), Greenidge Generation (GREE) (6.1%), Argo Blockchain (ARBK) (0.44%) and Voyager Digital (OTCQX:VYGVF) (0.2%).

Overall, S3 SI % Float for the crypto stocks added up to 18.2% vs. 13% in the year-ago period. But nominal short interest totaled $2.3B on June 14, compared with $2.9B on June 11 2021.

Also, short interest, or the number of shares that are actively selling short, was an average of $3B in the crypto sector, S3 noted.

Unsurprisingly, the short selling in those stocks is ongoing, with $71M of new short selling in less than two weeks of June, S3 said. Bitcoin (BTC-USD) is off almost 27% M/M. Meanwhile, bitcoin ETFs are plummeting to all-time trading lows amid the crypto meltdown.

"Shorting crypto stocks may continue to be a profitable trade," said S3 Partners' Ihor Dusaniwsky and Matthew Unterman. "Short sellers should not be blamed for near term downward price moves, but they may be an active participant in future rallies."

Earlier, Coinbase remains long-term winner despite job cuts, crypto turmoil.

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