The Bitcoin-holder Strategy (MSTR) stock market is among the most “heavily sold,” a market slang term for the dominance of bear plays, according to data from FactSet and Goldman Sachs. Yet some observers say the positioning may not reflect investors’ preference for continued price falls.
According to the report released last week, bearish bets on Strategy (MSTR) accounted for 14% of its $34 billion market cap at the time, making it the best-selling stock by that measure. Cryptocurrency exchange Coinbase (COIN) ranked fourth with 11% of its market capitalization. The report tracks positioning in stocks with market capitalizations above $25 billion.
This comes as Strategy suffers an unrealized loss of around $7 billion on its Bitcoin holdings. However, this figure has no impact on the stock in the short term. Strategy began adding BTC to its balance sheet in 2020 and has since gobbled up 717,722 BTC, worth $47 billion. At the time of writing, its market capitalization was closing in on $42 billion, despite the stock’s decline of 20% since the start of the year.
One explanation for the high short interest offered by analysts is basis trading – a strategy that seeks to profit from the price difference between two related markets. In this context, traders can buy Bitcoin spot ETFs, like BlackRock’s IBIT, while simultaneously selling MSTR stock. to benefit from a reduction in MSTR’s premium to its BTC holdings, as well as any funding from matched futures contracts if they are overlaid, while remaining market neutral.
“I suspect a lot of this short interest is still trading on the MSTR/BTC basis. Jane Street, in particular, has recently acquired a remarkably large IBIT position,” said Brian Brookshire, a specialist in Bitcoin treasury companies.
According to recent 13F filings, Jane Street purchased over 7 million shares of iShares Bitcoin Trust from BlackRock. She also held a significant position in MSTR.
If Brookshire’s instincts hold, Jane Street’s purchases of IBIT could be part of carry/basis trading, coupled with short positions in MSTR.
So far this year, this trade wouldn’t have worked out. The MSTR/IBIT ratio is up about 12%, meaning that MSTR has outperformed IBIT on the downside. MSTR is down 20% year to date, while IBIT is down 27%.
