MicroStrategy Burns Shorts Sellers as Shares Rally With Bitcoin
MicroStrategy Burns Shorts Sellers as Shares Rally With Bitcoin·Bloomberg
(Bloomberg) -- MicroStrategy Inc.’s shares have more than tripled so far this year, getting a boost as Bitcoin surges to all-time highs, burning traders betting against the company.
Short sellers positioning for MicroStrategy to decline have accumulated paper losses of about $3.3 billion so far in 2024 amid the stock’s more than 170% gain, according to data from S3 Partners LLC. That’s pushed mark-to-market losses over the last 12 months to more than $4.3 billion.
“Shorting MicroStrategy is a tough position to take,” said Larry Tentarelli, chief technical strategist, Blue Chip Daily Trend Report. He added that the stock’s recent volatility could have been good for short sellers; at the start of March, shares fell more than 20% in one day after the company announced it would sell convertible notes to buy Bitcoin.
The contrarian group may be in for more pain. If shares of the enterprise software maker continue to climb, traders are at risk of a short squeeze, a phenomenon where sellers may be forced to buy the stock back to cover their losing positions. The covering will drive share price even higher, putting more pressure on the cohort.
The amount of MicroStrategy shares available to trade, or float, is relatively high at more than 22% — generally a bearish signal. This is in-line with most cryptocurrency-linked stocks, including Coinbase Global Inc. and Marathon Digital Holdings Inc, per S3.
“These stocks are both more crowded and much more squeezable than the average US stock,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
Wall Street analysts have boosted their price targets on MicroStrategy this week, citing the company’s Bitcoin purchasing strategy as a catalyst for gains. Canaccord Genuity raised its price target to a Street-high of $1,810 from $975.
This week alone, the company bought nearly $822 million more of the digital asset mostly with the proceeds of the private convertible note sale. Bitcoin this week surged to a fresh all-time high of more than $73,000 as investors rush to buy into new exchange-traded funds linked to the crypto.
Read more: Bitcoin Tops $73,000 to Hit New Record On Insatiable ETF Demand
“This is not a short-term trading strategy but rather reflects management’s belief that Bitcoin will ultimately prove a superior store of value,” Cowen analysts led by Lance Vitanza wrote in a March 12 note. Vitanza boosted his target to $1,560 from $1,220, maintaining an outperform rating on the stock.
“MicroStrategy shares remain an attractive vehicle for investors looking to gain Bitcoin exposure, in our view,” he said.
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