Short sellers have had a killing spree across various sectors of the US stock market this year, but no other sector has “held the candle” for the blockchain industry as profits for short sellers at crypto companies have surged by 126% in 2022, according to new data.
On Thursday, technology and data analytics firm S3 Partners released a video summarizing its recent report, which found that overall short sellers of U.S. stocks rose by an average of more than 30% on the year.
Some of these earnings gains were attributed to short selling of automotive and components stocks (up 54%), software and services stocks (up 50%), media stocks and entertainment (up 46%) and retail stocks (up 46%) over the year, although they all paled against crypto stocks, which saw earnings from short sales increase by 126% in 2022.
“But none of these industries match short sellers in the crypto sector, up 126% on an average short interest of $3 billion.”
Crypto stocks with the highest short interest include exchange Coinbase Global (COIN), Bitcoin miner Marathon Digital Holdings (MARA), and MicroStrategy (MSTR), a software company that is also known to be the biggest publicly traded holder of bitcoin.
#Crypto short sellers are up over 30% in 2022! ⁰⁰
— S3 Partners (@S3Partners) June 16, 2022
Short selling is when an investor borrows a security and sells it on the open market in the hope of buying it back in the future at a lower cost, pocketing the difference. It pays off when prices go down.
Short interest is the total number of shares of a particular stock that have been sold short by investors but have not yet been hedged or closed. High or rising short interest may indicate that investors are pessimistic about a certain security.
At the time of writing, Coinbase shares are down 79.67% YTD (YTD), Marathon Digital is down 80.02% YTD, and MicroStrategy is down 71%. 10% YTD, according to Google Finance.
However, S3 Partners says that while the pace of crypto short selling has remained high, with $71 million in new short selling during the period, the pool of stocks available to borrow is drying up, meaning that “potential short sellers may be late to the party.
“With equity borrower utilization at 91%, the size of shorts can be difficult to execute, and borrowing rates can make new and existing shorts expensive.”
Utilization is measured by the number of shares on loan divided by the shares available in the securities lending market, with high utilization indicating that demand for shares from short sellers is high.
On Tuesday, S3 Partners managing director of predictive analytics Ihor Dusaniwsky told his 82,000 Twitter followers that Coinbase’s short interest hit $1.52 billion on June 14, while MicroStrategy reached $689 million. Short-term interest from Marathon Digital Holdings was $181 million.
Related: Further decline expected, but multiple data points suggest Bitcoin is undervalued
Falling crypto stock prices accompany falling crypto prices and slowing traditional markets amid steep interest rate hikes and high inflation.
On Thursday, the price of Bitcoin fell to $20,205 as rumors swirled about a possible collapse of crypto hedge fund Three Arrows Capital (3AC).
Recent price movements have led some analysts to believe that a very long period of consolidation and accumulation for the crypto market is ahead.