With the rise of cryptocurrencies over the trailing year-and-a-half period sparking interest in decentralized protocols, shares of Web 3.0 specialist Cryptyde (NASDAQ:TYDE) have generated some niche interest. However, TYDE stock skyrocketed around 60% this morning before settling into a rise of about 41% in early afternoon trading. The catalyst? Most signs point to a massive short squeeze.
To quickly recap, bearish traders can profit from declines in equity prices by shorting them or selling borrowed securities in the hopes of recouping them at a lower cost than the initial transaction price, thus pocketing the difference. Shorting can present powerful tools of profitability, though the risk is always that the underlying securities can rise in value, theoretically creating unlimited liability.
To prevent financial disaster, bearish traders must then acquire the borrowed securities to close out the position. Invariably, this buying frenzy lifts the underlying shares, making short squeezes incredibly profitable for bullish contrarians.
Huge news Marketwatch which is owned by Dow Jones, a very reputable data and news provider, says $TYDE (the $BBIG spinoff) stock now has 171% short interest. Wow that’s like $TBLT bf its big move. pic.twitter.com/m2iqSYich3
— Will Meade (@realwillmeade) July 27, 2022
Intriguingly, the social media post featured above indicated MarketWatch reported more than 171% of Cryptyde’s float was held short. Further, data from the Wall Street Journal noted that nominally, 3.04 million shares are held short as of the latest read on July 15. In addition, between this read and the previous report, the magnitude of difference in the number of shares held short is 300%.
With short squeezes playing a prominent role in meme trades, the narrative may have contributed to the extraordinary performance of TYDE stock. Still, investors need to be careful about participating in such endeavors.
TYDE Stock and the Bigger Picture
Chatter on social media reported TYDE stock suffered a brief halt before trading activities resumed, underscoring the power of speculation. However, prospective investors should consider the bigger picture before diving into risky opportunities.
For one thing, even with the tremendous spike in market value on Wednesday, TYDE stock is down more than 90% since its first public closing session. Spun off at the end of last month from the digital media-focused business development firm Vinco Ventures (NASDAQ:BBIG), Cryptyde aims to deliver Web 3.0 innovations, which is a catch-all term for the third generation of web technologies.
Cryptyde initially plans to have three business lines: decentralized internet products, crypto mining services and consumer packaging. The first business unit seeks to leverage blockchain technologies to facilitate improvements and enhanced efficiencies in consumer-facing industries like music, movies and event services. The second unit aims to democratize crypto mining by making it accessible to consumers previously priced out of the market, while the third specializes in custom packaging products.
While intriguing, it’s also fair to point out there’s a non-zero probability the meme-stock phenomenon that captured the nation’s attention last year is steadily eroding. More than a few articles from mainstream publications like Bloomberg have sounded the alarm on ultra-risky speculative ventures.
Why It Matters
In addition, the fallout in cryptos is a major distraction for Web 3.0 applications, which have hawked the promise of a decentralized utopia. With several top-shelf virtual currencies suffering steep losses, the association that Web 3.0 garnered with the blockchain might boomerang back with sharply negative consequences. Therefore, investors ought to exercise extreme caution with TYDE stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.