Cryptocurrency stocks have been hit hard so far in 2022 as investors dumped risky assets as interest rates rose.
Crypto stock short sellers have done fairly well so far this year, but a new report from S3 Partners analyst Ihor Dusaniwsky has suggested that short sellers expect more weakness for crypto stocks.
Numbers: Dusaniwsky said Thursday that short interest among application software stocks fell $41.5 billion in August and now totals $958.7 billion. But while short-sellers have reduced their exposure to application software stocks overall, three of the top five application software stocks with the highest short interest based on a short percentage of float are crypto stocks. MicroStrategy Embedded MSTR, Marathon Digital Holdings Inc. MARA and Blockchain Riot Inc RIOT.
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According to S3’s short-adjusted numbers, 33% of MicroStrategy’s free float is currently held in short positions, making it the most heavily shorted stock in the group. Additionally, 24% of Marathon Digital’s free float is held in short positions, while short positions represent 19.2% of Riot’s free float.
S3 also said that MicroStrategy is the shortest crowded application software group with an S3 Crowded Score of 85.. Marathon Digital is the third most visited with a score of 72.5.
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Benzinga reported on extremely high short interest from MicroStrategy on August 2, but the stock has come under pressure over the past month as Bitcoin BTC/USD prices briefly dipped back below $20,000. Bitcoin prices rose more than 10% to top $21,000 on Friday despite a growing likelihood of a third consecutive 0.75% interest rate hike from the Federal Reserve later this month.
Benzinga’s opinion: On Thursday, none of the three crypto stocks were among the top five most compressible application software stocks based on S3’s Squeeze Score. But if Friday’s big crypto rally continues into next week, it could start putting pressure on heavily shorted crypto stocks and put a major crypto stock squeeze on the table in the near future.
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