Bitcoin's Rebound Triggers Short Squeeze Fears Among Crypto Traders
Bitcoin's recent rebound has caught the attention of traders and analysts, particularly those who have been shorting the cryptocurrency. According to S3 Partners Director of Research Leon Gross, Bitcoin has rallied more than 50% from its lows this year, but remains down year-to-date. This discrepancy between price action and overall performance has raised concerns about a potential squeeze in crowded crypto shorts.
Gross noted that several bitcoin-linked stocks have shown return correlations above 0.70 with Bitcoin, indicating a meaningful exposure to both the cryptocurrency and broader equity markets. These stocks include Strategy MSTR, Strive ASST, and Coinbase COIN. The latter two have seen significant price increases since January, with ASST rising to roughly 190% of its original level by late September, while MSTR finished above its baseline at around 110%.
However, despite these gains, short interest in all three stocks remains elevated, with COIN and MSTR sporting short-interest levels of approximately 13% and 10%, respectively. Gross also pointed out that the relationship between short interest and stock prices has been positive for ASST at times, indicating that investors were shorting the stock as it moved higher.
On the other hand, Coinbase's short interest was mostly negative until August, when its correlation turned more positive. S3 stated that a positive correlation between short interest and stock price indicated that investors were shorting the stocks as they rose in value. The squeeze-score chart shows elevated readings across the group, with MSTR's score above 70 at times.