Stock Market Bears Smell Blood in Crypto Space, Gain 126%

New data shows that short sellers have made a fortune in every sector of the U.S. stock market so far this year, but no other industry has matched the blockchain industry, with profits for short sellers of crypto companies up 126% in 2022, according to the latest data .

On Thursday, technology and data analytics firm S3 Partners released a video summarizing its recent report, which found that, overall, U.S. stock short sellers are up more than 30% on average this year.

Some of that profit gain was attributable to shorting auto and parts stocks (up 54%), software and services (up 50%), media and entertainment (up 46%) and retail (up 46%), despite the same Those stocks all pale in comparison to crypto stocks, which are up 126% in 2022 short-selling profits.

“But none of these industries can match short sellers in the cryptocurrency space, with an average short sale of $3 billion, up 126%.”

Crypto stocks with the highest short interest include exchange Coinbase Global (COIN), bitcoin miner Marathon Digital Holdings (MARA) and MicroStrategy (MSTR), a software company and the largest publicly traded holder of bitcoin.

Short selling occurs when investors borrow securities and sell them on the open market with the expectation of buying them back at a lower price in the future, pocketing the difference. This is profitable when prices fall.

Short sales are the total number of shares of a particular stock that have been sold short by investors but have not been closed out or closed out. High or increasing short interest may indicate that investors are bearish on a stock.

At the time of writing, shares of Coinbase are down 79.67% year-to-date (YTD), Marathon Digital is down 80.02%, and MicroStrategy is down 71.10%, according to Google Finance.

However, S3 Partners said that while the velocity of short selling in cryptocurrencies has been high, with $71 million in new short sales during the period, the pool of shares available to borrow is drying up — meaning that “potential short sellers may It's too late."

“With a 91% utilization rate for equity borrowers, large short sales can be difficult to execute, while lending rates can make new and existing short sales expensive.”

Utilization is measured as the number of shares lent out divided by the number of shares available in the securities lending market, with high utilization indicating increased demand for the stock from short sellers.

On Tuesday, Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told his 82,000 Twitter followers that Coinbase’s short position hit $1.52 billion on June 14, while MicroStrategy’s short position hit $689 million. The short interest in Marathon Digital Holdings was $181 million.

The drop in crypto stock prices has been accompanied by a plunge in crypto prices and a slump in traditional markets amid surging interest rates and high inflation.

The price of bitcoin fell to $20,205 on Thursday as rumors swirled about the possible bankruptcy of crypto hedge fund Three Arrows Capital (3AC).

Recent price volatility has prompted some analysts to believe that the cryptocurrency market is headed for a very protracted period of consolidation and accumulation.