BTC Short Sellers Burn Through Billions as Bitcoin Refuses to Drop

Cryptocurrency short sellers experienced a turbulent year in 2023, grappling with mark-to-market losses amounting to $6.05 billion.

These losses were primarily driven by the remarkable performance of Bitcoin and other digital currencies since the beginning of the year.

Crypto Prices Soar in 2023, Short Sellers Feel the Heat

According to a report published on December 5 by research firm S3 Partners, traders who have taken a bearish stance on publicly traded crypto firms, including Coinbase, MicroStrategy, and Marathon Digital, face losses amounting to $6.05 billion.

Since its recent low in September, the price of Bitcoin has shown a significant increase of +58% and a staggering +157% year-to-date, according to data from Coingecko. As the industry demonstrates its strength, short sellers have experienced substantial mark-to-market losses due to the rising value of cryptocurrency equities.

During the first three quarters of 2023, short sellers reduced their exposure to cryptocurrency stocks as the market rebounded and the mark-to-market value of shorted securities rose. This resulted in a short covering worth $2.19 billion.

However, since the most recent bottom of Bitcoin of $25,133 in September 2023, there has been a surge in short selling totaling $697 million as sellers increased their exposure in what they perceived as an overbought market.

In a surprising turn of events, Bitcoin experienced a significant surge, recording an impressive 76% increase and reaching a new annual peak of $44,313 on December 5. This unexpected rally resulted in approximately $2.65 billion in losses for short sellers.

“Buying-to-cover in the most shorted crypto stocks such as Coinbase Global, MicroStrategy, Marathon Digital Holdings, and Riot Platforms will help push stock prices higher along with the long buying that has driven up stock prices since the end of October,” Ihor Dusaniwsky, managing director of predictive analytics at S3, noted in the report.

Coinbase and MicroStrategy Crush Crypto Shorts

Coinbase has presented significant challenges for short sellers who have taken positions against the sector this year. The company’s impressive 290% rally has resulted in losses of around $3.5 billion, accounting for over half of the total losses incurred in 2023.

Similarly, MicroStrategy’s gain of over 300% this year has further contributed to the losses of crypto shorts by an additional $1.4 billion.

Despite the increasing losses for short sellers, some continue to invest in contrarian trades, hoping the rally will soon lose momentum. However, if Bitcoin continues its upward trajectory, this trend could reverse, resulting in a rise in short covering, which has already amounted to approximately $2.2 billion this year.