In 2023, short sellers targeting the cryptocurrency industry have incurred losses exceeding $6 billion, primarily due to the significant surge in Bitcoin’s value since the beginning of the year.
A report from S3 Partners, dated Dec. 5, reveals that traders who placed bets against publicly traded crypto companies like Coinbase, MicroStrategy, and Marathon Digital are facing a collective loss of approximately $6.05 billion. These losses have been particularly acute over the past three months.
This period of loss began after Bitcoin dropped to a quarterly low of $25,133 on Sept. 11. At that point, short sellers increased their bets against what they perceived as an overvalued sector. Contrary to their expectations, Bitcoin experienced a remarkable 77% rally, reaching a new high for the year at $44,481 on Dec. 5, as reported by Cointelegraph. This unexpected surge resulted in about $2.65 billion in losses for those shorting the market.
Ihor Dusaniwsky, S3’s managing director of predictive analytics, noted in the report that covering purchases in heavily shorted crypto stocks like Coinbase Global, MicroStrategy, Marathon Digital Holdings, and Riot Platforms would likely further boost their stock prices. This is in addition to the upward momentum driven by long buyers since late October.
Bitcoin’s impressive 161% rally year-to-date has significantly influenced the share prices of crypto firms. For instance, Coinbase and MicroStrategy have seen their stock prices increase by 312% and 285%, respectively, within the same period. At the time of the report, Bitcoin was trading at $43,964, with the recent increase partly attributed to the growing expectation of a potential spot Bitcoin ETF approval in January.
Coinbase has been the most costly bet for short sellers, with the company’s nearly 290% rise resulting in over $3.5 billion in losses for them. MicroStrategy follows closely, with its growth causing more than $1.7 billion in losses for short sellers.
Despite these substantial losses, some short sellers remain undeterred, continuing to increase their positions in anticipation that the current rally might lose its momentum. Since the mid-September recovery of Bitcoin, an additional $697 million has been invested in new short positions.
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