Strategy becomes most heavily shorted U.S. stock – but don't assume pure bearishness

• Short bets on Strategy amount to 14% of its market cap, the highest among stocks tracked by FactSet and Goldman Sachs.
• Market participants say the elevated short interest likely reflects MSTR, BTC basis or carry trades, with firms such as Jane Street building large positions in both MSTR and BlackRock’s IBIT, suggesting paired long and short strategies instead of outright bearish conviction.

The market for Bitcoin-holder Strategy (MSTR) shares is among the most "heavily shorted," a market slang term for dominance of bearish plays, according to FactSet and Goldman Sachs data. Yet the positioning may not reflect investor bias toward a continued price crash, per some observers.

According to Goldman's report released last week, bearish short bets on Strategy (MSTR) equaled 14% of its market capitalization of $34 billion at the time, making it the most shorted stock by that measure. Cryptocurrency exchange Coinbase (COIN) ranked fourth, accounting for 11% of its market cap. The report tracked positioning in stocks with a market capitalization of over $25 billion.

This comes as Strategy is sitting on an unrealized loss of roughly $7 billion on its bitcoin holdings. That figure, however, has no impact on the stock in the near term. Strategy began adding BTC to its balance sheet in 2020 and has since gobbled up 717,722 BTC, worth $47 billion. As of writing, its market cap stood closer to $42 billion, despite the stock falling 20% year-to-date.

One explanation for the elevated short interest offered by analysts is the basis trade – a strategy that seeks to profit from the price difference between two related markets. In this context, traders may buy bitcoin spot ETFs, such as BlackRock's IBIT, while simultaneously shorting MSTR stock. to profit from a narrowing of MSTR's premium to its BTC holdings narrows, plus any funding from paired futures if layered on, while staying market neutral.

"I suspect a lot of this short interest is still MSTR / BTC basis trade. Jane Street, in particular, has recently acquired a conspicuously large IBIT position," Brian Brookshire, specialist in bitcoin treasury companies, said.

According to recent 13F filings, Jane Street purchased more than 7 million shares of BlackRock's iShares Bitcoin Trust. It also held a large position in MSTR.

If Brookshire's instincts hold, Jane Street's purchases of IBIT could be a part of the carry/basis trade, paired with short positions in MSTR.

So far this year, that trade would not have worked. The MSTR-to-IBIT ratio is up about 12%, meaning MSTR has outperformed IBIT on the downside. MSTR is down 20% year to date, while IBIT has fallen 27%.

• XRP rose about 6% to roughly $1.42 as spot buying sharply outpaced selling, with one exchange reporting retail purchase volumes up 212% between Feb. 23 and 24.
• New XRP exchange-traded funds have accumulated about $1.1 billion in net assets since mid-November, drawing steady inflows even as bitcoin ETFs are down for the year, suggesting a rotation within crypto holdings.
• Traders are watching whether XRP can hold the $1.40–$1.42 area as support and break above resistance near $1.45, with a drop below $1.37 risking a failed breakout and return to the prior trading range.

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