Short Sellers Jump on Crypto Stocks Despite Steep Cost of Wagers

image

(Bloomberg) — Short sellers have pounced on crypto-focused equities as the digital-assets space crumbles in the wake of FTX’s public implosion. They’re paying a steep price to place those wagers.

Crypto stocks are nearly three times more shorted than the average share, even as short sellers are paying almost eleven times as much in financing costs to bet against them, according to data compiled by Ihor Dusaniwsky and Matthew Unterman at S3 Partners.

Traders banking on losses in a handful of crypto stocks, including Block Inc., Coinbase Global Inc., MicroStrategy Inc. and five others, added $55 million worth of new shorts in the week through Friday, according to S3’s analysis. Block and Coinbase alone saw about $27 million of new short selling combined. Total crypto short interest for these eight stocks is more than $4.5 billion.

MicroStrategy, meanwhile, has roughly 26% of its tradable float shorted, according to S3 data. For Silvergate Capital Corp., short interest as a percent of float exceeds 10%.

“Sam Bankman-Fried’s failed crypto exchange FTX.com and resulting bankruptcy has thrown crypto-currencies and the crypto industry into a volatile cycle of price movement,” Dusaniwsky and Unterman wrote in a note. “Shorting these crypto stocks has been a very profitable trade in 2022.”

Even before FTX’s demise, the crypto space had been roiled by a number of other implosions and scandals this year. But sentiment has deteriorated even more drastically after FTX’s undoing because the company was considered a stable presence within the industry. Bitcoin, the largest digital asset by market value — whose price moves often serve as a read on crypto-market sentiment — has sunk below $17,000, from nearly $69,000 just a year ago.

Crypto-focused stocks have suffered too. Shares of Coinbase and Silvergate have declined more than 80% this year, while those of MicroStrategy have dropped 70%. Wall Street analysts’ conviction in the shares is also ebbing. Coinbase, for example, has the lowest number of buy-equivalent ratings since August 2021, data compiled by Bloomberg show.

FTX is now in bankruptcy, with revelations of its inner workings during its last days slowly trickling out in a dramatic way through court filings. FTX’s Chapter 11 filing said that approximately 130 affiliated companies have commenced voluntary proceedings. And regulators are looking into FTX’s fallout as well.

Its descent into bankruptcy went from “‘Oh jeez, this is bad,’ to ‘Oh my god, this is horrible,’” said Art Hogan, chief market strategist at B. Riley Wealth.

“We’ve already seen that FTX had a lot of tentacles. In the company alone, the cross-ownership in FTX into almost everything else that touches crypto means that there’s going to be more fallout to this,” he said in an interview. “So therefore, it’s intuitive to think that a lot of these real crypto-related companies are going to attract a lot of short sellers.”

©2022 Bloomberg L.P.

Trending Ideas

Featured Stocks On The Move

Daily Rundown

Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Featured Content Hawaiian Electric Industries, Inc. (HE) Hawaiian Electric Industries, Inc. is a holding company that provides electric utility services and financial services in Hawaii. Through its subsidiaries, it supplies... Read More

  • 3 Bank Stocks To Buy Now

    Featured Content Comerica Incorporated (CMA) Comerica Incorporated is a financial services company headquartered in Dallas, Texas, offering a range of banking products and services, including commercial and retail banking, wealth... Read More

  • 3 Machinery Stocks To Buy Now

    Featured Content Alta Equipment Group Inc. (ALTG) Alta Equipment Group Inc. is an integrated equipment dealership platform in the United States, operating through three segments: Material Handling, Construction Equipment, and... Read More

  • 3 Silver Stocks To Buy Now

    Featured Content Gatos Silver, Inc. (GATO) Gatos Silver, Inc. is a precious metals mining company primarily focused on silver and zinc production. Its flagship Cerro Los Gatos mine in Mexico... Read More

  • 3 Metal Production Stocks To Buy Now

    Featured Content Century Aluminum Company (CENX) Century Aluminum Company is a primary aluminum producer, with operations that include the production of high-purity, low-carbon aluminum used in automotive, aerospace, and industrial... Read More

  • 3 Medical Drug Stocks To Buy Now

    Featured Content Teva Pharmaceutical Industries Limited (TEVA) Teva Pharmaceutical Industries Limited is a global pharmaceutical company specializing in generic and specialty medicines. The company provides a wide range of treatments... Read More

  • 3 Paper Product Stocks To Buy Now

    Featured Content AptarGroup Inc. (ATR) AptarGroup Inc. is a global leader in providing innovative dispensing and packaging solutions, serving diverse industries like beauty, personal care, and pharmaceuticals. They focus on... Read More

  • 3 Restaurant Stocks To Buy Now

    Featured Content Brinker International, Inc. (EAT) Brinker International, Inc. operates well-known restaurant brands such as Chili’s Grill & Bar and Maggiano’s Little Italy. The company is a leader in the... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Featured Content Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial services company known for its commission-free trading platform, which allows users to trade stocks, options, cryptocurrencies, and ETFs.... Read More

  • 3 Shipping Stocks To Buy Now

    Featured Content ZIM Integrated Shipping Services Ltd. (ZIM) ZIM Integrated Shipping Services Ltd. is a global container shipping company that provides cargo transportation services worldwide. The company operates a modern... Read More

  • 3 Mining Stocks To Buy Now

    Featured Content Perpetua Resources Corp. (PPTA) Perpetua Resources Corp. is a mining company focused on the exploration and redevelopment of the Stibnite Gold Project in Idaho, which is one of... Read More

  • 3 Airline Stocks To Buy Now

    Featured Content General Electric Company (GE) General Electric Company is a global industrial conglomerate with operations spanning sectors such as aviation, healthcare, power, and renewable energy. GE is known for... Read More