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Strategy emerges as the most shorted stock in the U.S. – but don’t interpret this as exclusively negative sentiment.
Short interest in MSTR constitutes 14% of its market capitalization, though much of this positioning could indicate basis trades instead of outright predictions of further declines.
What to know:
- Short positions on Strategy represent 14% of its market capitalization, the highest among stocks monitored by FactSet and Goldman Sachs.
- Market participants suggest that the high short interest likely reflects MSTR, BTC basis or carry trades, with firms like Jane Street establishing significant positions in both MSTR and BlackRock’s IBIT, indicating paired long and short strategies rather than outright bearish sentiment.
The trading landscape for Bitcoin-holder Strategy (MSTR) shares is characterized as one of the most “heavily shorted,” a term describing a dominance of bearish strategies, based on data from FactSet and Goldman Sachs. However, some analysts note that the positioning may not signify a belief in an ongoing price drop.
A report from last week indicated that bearish short positions on Strategy (MSTR) amounted to 14% of its market cap of $34 billion at that time, making it the most shorted stock by this metric. Cryptocurrency exchange Coinbase (COIN) was ranked fourth at 11% of its market capitalization. The report analyzed stocks with market capitalizations exceeding $25 billion.
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This occurs as Strategy faces an approximate $7 billion unrealized loss on its bitcoin assets. However, this figure has no immediate effect on the stock. Strategy commenced accumulating BTC in 2020 and has since acquired 717,722 BTC, valued at $47 billion. As of the latest update, its market cap was approximately $42 billion, despite a 20% decline in stock value year-to-date.
One reason analysts provide for the heightened short interest is the basis trade, a strategy aimed at profiting from the price disparity between two correlated markets. Within this framework, traders may purchase bitcoin spot ETFs, such as BlackRock’s IBIT, while concurrently shorting MSTR stock to benefit from a reduction in MSTR’s premium relative to its BTC holdings, alongside any funding from paired futures if incorporated, while maintaining market neutrality.
“I suspect that a significant portion of this short interest is attributable to MSTR / BTC basis trade. Jane Street, in particular, has recently built a notably large position in IBIT,” stated Brian Brookshire, an expert in bitcoin treasury companies.
Recent 13F filings reveal that Jane Street acquired over 7 million shares of BlackRock’s iShares Bitcoin Trust and also maintained a substantial position in MSTR.
If Brookshire’s suspicions prove accurate, Jane Street’s investments in IBIT could be part of the carry/basis trade, coupled with short positions in MSTR.
Thus far this year, this trade has not been successful. The MSTR-to-IBIT ratio has increased by approximately 12%, indicating that MSTR has outperformed IBIT on the downside. MSTR has decreased by 20% year to date, while IBIT has seen a decline of 27%.
Highest short interest outstanding as a percentage of market cap (Goldman Sachs)
