Shares of MicroStrategy (NASDAQ:MSTR) are down by about 5% as several spot Bitcoin (BTC-USD) exchange-traded funds (ETFs) begin their first day of trading following U.S. SEC approval. These include BlackRock’s (NYSE:BLK) iShares Bitcoin Trust (NASDAQ:IBIT) and the ARK 21Shares Bitcoin ETF (NYSE:ARKB). However, so far in 2024, MSTR stock is now down by 22%.
The emergence of Bitcoin ETFs presents a major threat to MicroStrategy, as many people have invested in the Bitcoin-centric company as a proxy for the actual cryptocurrency. With actual ETFs now available, these people may transfer their capital elsewhere.
As of Dec. 27, MicroStrategy owned 189,150 Bitcoins at an average price of $31,168 per coin. In fact, the company owns almost 1% of the total Bitcoin supply. MicroStrategy also owns the most Bitcoin among all publicly traded companies by a wide margin. Marathon Digital Holdings (NASDAQ:MARA) comes in second with 15,174 Bitcoins, followed by Tesla (NASDAQ:TSLA) with 10,725 Bitcoins.
MSTR Stock Short Squeeze Analysis
As of Dec. 31, 2.88 million shares of MSTR were sold short with a value of $1.82 billion. That’s equivalent to a short interest as a percentage of float of 19.55%. Generally, a short interest of 10% is considered high, while a short interest of 20% or above is considered very high. MicroStrategy’s high short interest supports the possibility of a short squeeze.
Another short squeeze indicator to track is the cost-to-borrow (CTB) fee. This fee represents the annual rate that short sellers must pay to borrow stock. The fee rises when short seller demand is high and falls when demand is low.
At the time of writing, MicroStrategy carried a CTB fee of just 0.48% with 150,000 shares available to short. That’s compared to the average stock CTB fee of between 0.3% and 3%. MicroStrategy’s CTB indicates that short seller demand is currently low, contrasting with its short interest. A reason here may be that CTB data is current, while short interest data is presented with a lag.
Short squeezes are extremely hard to predict, although it doesn’t appear as if MSTR stock is setting up for one. With shares already down significantly this year, current short interest is likely to have fallen from the figure on Dec. 31 as short sellers close their positions with gains.
On the date of publication, Eddie Pan did not hold (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.
