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MicroStrategy short squeeze? MSTR stock on the rise despite $1bn loss on BTC holding


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An illustration of BTC and MSTR logos
MSTR is the biggest corporate owner of BTC. – Photo: ShutterStock

Shares in MicroStrategy (MSTR), the biggest corporate owner of bitcoin (BTC), rallied unexepectadly 14% on Wednesday despite the company posting second-quarter earnings which revealed near £1bn losses on the firm's BTC holdings in the second quarter.

MSTR reported on Tuesday that it had taken a non-cash digital asset impairment charge of $917.8m on its BTC holdings for the second quarter of 2022 as the price of the number 1 digital asset fell from around the $45,000 level to $20,000 during the period. 

MSTR share price chart

The US software company has become a target of short-betters amid a cryptocurrency market downturn, with a record 51% of MSTR shares sold short, carrying a notional value of $1.35bn, just ahead of the earnings report, according to data by S3 partners company, as reported in Bloomberg.

Could have short-sellers rushing to liquidate their positions resulted in a so-called short squeeze, which then helped propel the unexpected surge in MSTR price? A short squeeze occurs when there’s an unexpected spike in a heavily shorted stock, forcing the short-sellers to buy shares and exit their positions in big numbers, thus pumping the share price even higher. 

MSTR had been on short-sellers radar for a while. The company has been surrounded by fears it would be forced to liquidate some of its BTC holdings to cover a margin call on a BTC-backed loan from SilverGate Bank in the event of the biggest cryptocurrency falling below $21,000. MicroStrategy swiftly downplayed the potential margin call, with the company's boss calling the reaction “much ado about nothing”.

But increasing numbers of traders were betting MSTR shares will sink anyway, with the number of MSTR shares sold short reaching a record high just before the company posted its quarterly results. 

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MicroStrategy (MSTR) for the last 30 days

MicroStrategy (MSTR) price chart over the last 30 days.MicroStrategy (MSTR) price chart over the last 30 days.. – Photo: Capital.com

Sticking to BTC

Michael Saylor, the famous BTC advocate, is stepping down as a CEO after 33 years at the helm of the company that he co-founded. Saylor will assume a role of executive chairman of MicroStategy on 8 August.

BTC/USD

18,928.50 Price
+0.240% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 60.00

DOGE/USD

0.06 Price
+0.240% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00090

ETH/USD

1,319.00 Price
+1.210% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 5.00

SHIB/USD

0.00 Price
+3.830% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00000042

Despite the almost $1bn losses on the BTC stash, the company said it is committed to continuing to acquire BTC: “As executive chairman, Mr. Saylor will focus primarily on innovation and long-term corporate strategy while continuing to provide oversight of the company’s bitcoin acquisition strategy as head of the board’s investments committee," the company said in a statement

BTC to US Dollar

Phong Le, the company’s president, will also serve as the company’s new chief executive officer and as a member of the board of directors. 

“I believe that splitting the roles of chairman and CEO will enable us to better pursue our two corporate strategies of acquiring and holding bitcoin and growing our enterprise analytics software business.

“As executive chairman, I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives, while Phong will be empowered as CEO to manage overall corporate operations,” Saylor added.

 

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