Shares in companies exposed to the cryptocurrency space tore higher on Monday. Many of these stocks are beaten down and widely bet against by traders, which means that gains could be accelerated through a “short squeeze.”
Crypto broker Coinbase Global‘s stock (ticker: COIN) rallied 5% in U.S. premarket trading. MicroStrategy (MSTR), a software company with significant holdings of Bitcoin in its corporate treasury, surged almost 7% in the premarket, while crypto miners Riot Platforms (RIOT) and Marathon Digital (MARA) both…
Shares in companies exposed to the cryptocurrency space tore higher on Monday. Many of these stocks are beaten down and widely bet against by traders, which means that gains could be accelerated through a “short squeeze.”
Crypto broker
‘s stock (ticker: COIN) rallied 5% in U.S. premarket trading.
(MSTR), a software company with significant holdings of
in its corporate treasury, surged almost 7% in the premarket, while crypto miners
(RIOT) and
(MARA) both gained 4%. Futures tracking the
index rose 0.3%, by comparison.
All of these stocks have a history of moving in tandem with the price of Bitcoin, which had advanced 2% over the past 24 hours to $17,250—above the trading range between $16,500 and $17,000 that has dominated for much of the past month.
Technical market factors mean that these stocks may be primed to turn a short-term pop into a larger jump. Traders are betting against, or shorting, these companies to an extent that far outstrips the average among U.S. stocks, with almost 30% of
‘s circulating shares sold short, according to financial data group S3 Partners. The average American stock has a short interest of just over 5%.
Heavily-shorted stocks are vulnerable to violent swings upward because investors can come under pressure if the bet goes wrong and the price rises. Traders with shorts may decide to exit the trade—which involves buying back the stock that was shorted—and take a loss, but this can be complicated if it’s a very crowded trade. Short sellers may end up clamoring to buy up the same shares, “squeezing” the price higher.
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This scenario played out last week with the same group of stocks—and more of the same could come in the days ahead if the market remains volatile and crypto stocks keep benefiting from rising Bitcoin prices.
Write to Jack Denton at jack.denton@barrons.com
