Tom Lee: Strategy stock is the preferred cryptocurrency hedge.
TL;DR
Tom Lee states that Strategy Inc. stock is the preferred hedge for cryptocurrency investors due to its high liquidity and correlation with Bitcoin. This has led to a 43% stock drop as traders short it to offset losses on Bitcoin and Ethereum.
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According to Odaily, Bitmine Immersion Chairman Tom Lee stated that Strategy Inc. (MSTR) stock has become the preferred tool for cryptocurrency investors to manage risk, which is partly the reason why the stock has fallen 43% in the past month.
In an interview with CNBC, Tom Lee stated that Strategy Inc. is currently "the most watchable stock" because it "is a proxy for Bitcoin and has the highest liquidity."
Strategy Inc. holds nearly 650,000 Bitcoins, making its stock price closely correlated with Bitcoin's performance. Due to insufficient liquidity or depth in direct hedging instruments in the cryptocurrency market (such as derivatives), institutional traders have turned to short Strategy Inc.'s stock to hedge their losses on Bitcoin and Ether.
Tom Lee points out: "In the cryptocurrency world, when they try to hedge their losses on Bitcoin and Ethereum, it seems there is no other way but to short the liquid stock that acts as their proxy, namely Strategy Inc."
He added that Strategy Inc. offers a workaround where traders can use its highly liquid options chain to hedge all their long cryptocurrency positions. He believes that Strategy Inc. is "essentially absorbing all the hedging pressure the crypto industry is trying to exert to protect its long positions."
Tom Lee also attributes this phenomenon to the lingering effects of the October 10th market crash, which disrupted exchange liquidity and weakened market makers. He believes that Strategy Inc.'s role as a hedging tool reflects the structural problems that still make the crypto market pipeline vulnerable.