Short sellers in the crypto industry have suffered significant losses
Short sellers in the crypto industry have lost a staggering $6 billion this year while betting against publicly-traded crypto firms. The main reason behind these losses is Bitcoin's remarkable rally since the beginning of the year.
Short sellers nursing $6.05 billion in losses
A recent report from research firm S3 Partners reveals that short sellers who bet against crypto firms like Coinbase, MicroStrategy, and Marathon Digital are now facing paper losses of $6.05 billion.
Concentrated losses in the past three months
The majority of these losses for short sellers have been incurred in the last three months. When Bitcoin dropped to a quarterly low of $25,133 on September 11, short sellers increased their exposure, believing that the sector was overbought.
Bitcoin's rally inflicts $2.65 billion in losses
However, these short sellers were unaware that Bitcoin would stage a remarkable 77% rally, reaching a new yearly high of $44,481 on December 5. This surge resulted in losses of around $2.65 billion for the short sellers.
Short covering and long buying driving up stock prices
Ihor Dusaniwsky, the managing director of predictive analyst at S3, explained that buying-to-cover in heavily shorted crypto stocks like Coinbase, MicroStrategy, Marathon Digital Holdings, and Riot Platforms will help push stock prices higher. Long buying has also contributed to the increasing stock prices since the end of October.
Bitcoin's rally driving share prices
Bitcoin's year-to-date rally of 161% has been a major driver for the share prices of crypto firms. Coinbase and MicroStrategy have seen their share prices grow by 312% and 285% respectively within the same time frame.
Bitcoin trading at $43,964
At the time of writing, Bitcoin is trading at $43,964. The recent rally is attributed to the growing anticipation of a potential spot Bitcoin ETF approval in January.
Coinbase and MicroStrategy causing significant losses
Coinbase is proving to be the most unsuccessful trade for short sellers, with its rally of nearly 290% resulting in losses of over $3.5 billion. MicroStrategy follows closely behind, with short sellers losing more than $1.7 billion due to its growth.
Continued short selling despite growing losses
Despite the increasing losses, some short sellers are adding to their positions, betting that the current rally will soon lose steam. Since Bitcoin's mid-September bounce, short sellers have added $697 million in new positions.
