Short sellers in the crypto industry have faced staggering losses of at least $6 billion this year as they attempted to bet against publicly-traded crypto companies.
The primary culprit behind these substantial losses has been Bitcoin’s remarkable surge since the beginning of the year.
A recent report by research firm S3 Partners, dated December 5, reveals that traders who wagered against publicly traded crypto firms like Coinbase, MicroStrategy, and Marathon Digital are now grappling with cumulative on-paper losses amounting to $6.05 billion.
The majority of these losses have transpired in the past three months.
After Bitcoin dipped to a quarterly low of $25,133 on September 11, short sellers, believing that the sector was overbought, significantly increased their exposure.
However, unbeknownst to these traders, Bitcoin embarked on a remarkable 77% rally, reaching a new yearly high of $44,481 on December 5, as reported by Cointelegraph Markets Pro.
This sudden surge in Bitcoin value inflicted approximately $2.65 billion in losses upon short sellers.
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In response to these developments, S3’s managing director of predictive analysis, Ihor Dusaniwsky, pointed out, “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.”
Bitcoin’s year-to-date rally of 161% has exerted a substantial influence on the share prices of crypto firms.
Notably, Coinbase and MicroStrategy witnessed astonishing growth rates of 312% and 285%, respectively, within the same time frame.
As of the current writing, Bitcoin is trading at $43,964, with its recent surge attributed to the growing anticipation of potential approval for a spot Bitcoin exchange-traded fund (ETF) in January.
Among the short sellers, Coinbase stands as the most unfavorable trade, with the firm’s nearly 290% rally resulting in losses exceeding $3.5 billion.
MicroStrategy follows closely behind, with short sellers facing losses exceeding $1.7 billion.
Despite the mounting losses, some short sellers have continued to add to their positions, betting that the current rally will eventually lose momentum.
Since Bitcoin’s mid-September resurgence, an additional $697 million in new short positions have been established.
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