Original title: (Shorting MicroStrategy, will Citron Capital lose again?)
Original author: shaofaye123, Foresight News
On November 21, Citron Capital tweeted that it was shorting MicroStrategy stock. On one side is a Wall Street legendary short seller, and on the other, the strongest U.S. stock in 2024. Is Citron Capital going to lose again? This article will take you through the past stories of two legendary companies.
The short-selling giant Citron has always been a mysterious presence in the capital market, appearing in multiple cycles. In 2012, shorting Qihoo damaged its reputation, and in 2021, shorting GameStop forced it to close its position. In 2022, it also shorted Ethereum, which had a market value of $130 billion.
After Citron Capital announced its short position against MicroStrategy yesterday, the stock price fell immediately, retreating 30% from its daily high.
The short-selling past of Citron Capital
Citron Capital, a major short-selling institution in the U.S., was founded in 2001 and has since targeted 20 Chinese concept stock companies, resulting in a price drop of over 80% for 15 of them and 7 delistings. At that time, Citron Capital was on the rise and began shorting Evergrande. In its report, it stated, 'The outcome for Evergrande is already determined; the only uncertainty is the timing.' Ultimately, Evergrande collapsed, confirming Citron's prediction.
At one point, Citron was unbeatable. In 2021, GameStop entered the short-seller sights of major institutions. GameStop, as the world's largest video game retail chain, is an offline game retailer. At that time, its business had already been abandoned by the market and was being seized by major companies, seemingly indicating that the shorts would again achieve a great victory. However, the emergence of 'Roaring Kitty' staged a spectacular short squeeze battle on Wall Street. The identity behind 'Roaring Kitty' is Keith Gill, but at that time, no one knew. Under the fermentation of 'Roaring Kitty' and WSB, retail investors pushed the stock from $19.95 to double $39.91. Seeing the severely overvalued stock price, Citron couldn't sit still. On January 19, they officially launched a short report on GME and scolded retail investors who bought stocks at high positions as idiots. Retail investors fought back angrily, accompanied by Musk's tweet 'Gamestonk!', and the stock price once surged to $483. In this battle, Citron Capital lost 100%, closing out at $90, while another firm, Melvin Capital, lost as much as $6.8 billion.
After this incident, Citron announced that it would abandon its 20-year history of short research, no longer publish short reports, and shift its focus to providing long trading opportunities for individual investors, seemingly marking the end of the short-selling institution era. Major capitals have been defeated, and retail investors seem to have achieved final victory over Wall Street, but Robinhood's pulling of the plug caused stock prices to plummet. In the GME incident, it ultimately remains a victory for a few.
Afterward, Citron did not stop shorting as claimed; in 2022, it initiated a short against Ethereum, which had a market value of $130 billion, and now Ethereum's market value has tripled.
The strongest U.S. stock in 2024: MicroStrategy
MicroStrategy, a company more legendary than Citron Capital, a top-level conspiracy.
MicroStrategy was founded in 1989 by Michael Saylor, Sanju Bansal, and Thomas Spahr. Initially, MicroStrategy was just a consulting company focusing on multidimensional modeling and simulation. In his youth, Saylor was not optimistic about Bitcoin and even mocked virtual currency in 2013. However, starting in 2020, MicroStrategy began exploring alternative assets beyond cash, purchasing over 21,000 Bitcoins with its financial assets, gradually becoming the world's largest publicly traded holder of Bitcoin. MicroStrategy systematically invested heavily in Bitcoin, including taking on debt to increase its Bitcoin holdings. Currently, the publicly traded company with the most Bitcoin has only been around for two years, with paper profits exceeding $15 billion, and trading volume surpassing NVIDIA's highest level on that day in the U.S. stock market.
So what is MicroStrategy's strategy? How does it leverage huge profits?
In simple terms, MicroStrategy is now a company that specializes in purchasing BTC. By buying Bitcoin, it drives the price of Bitcoin up, and its own stock price rises accordingly. It borrows again to purchase Bitcoin, the price of Bitcoin soars again, the stock price further increases, and financing is used to buy more Bitcoin, causing the stock price to continue rising, with its net asset value and earnings also continuously increasing...
This flywheel model inevitably reminds one of Luna, whose collapse still lingers in the mind. Additionally, MicroStrategy currently has a 300% premium on Bitcoin, and MSTR investors are effectively paying $250,000 for each Bitcoin, while the market price is less than $100,000. Its stock price also carries a certain premium.
Shorting, win or lose?
Taking this opportunity, Citron Capital has struck again, tweeting on November 21 that:
Four years ago, Citron was the first to inform readers that MicroStrategy (MSTR) was the ultimate way to invest in Bitcoin, setting a target of $700.
Fast forward to today: MSTR has soared above $5,000 (adjusted). Salute to Michael Saylor's visionary Bitcoin strategy.
Now, as investing in Bitcoin becomes easier than ever, MSTR's trading volume has completely detached from Bitcoin's fundamentals. Although Citron remains optimistic about Bitcoin, we have hedged through a short position in MSTR.
I have great respect for Saylor, but even he must know that MSTR has overheated.
In fact, Citron is not the first company to suggest hedging bullish Bitcoin positions by shorting MSTR. In March of this year, another well-known institution, Kerrisdale Capital Management, also made a similar suggestion, stating that it wants to go long on Bitcoin but short MSTR stock.
Short sellers have struck again, and MicroStrategy's stock price fell immediately. Is it another Hunter family or a continued rise? Is it market foresight or another misstep?
From the data, MSTZ (2x inverse short MSTR ETF) saw an increase in trading volume on November 21, with daily trading volume approaching $1.53 billion, compared to a previous average of $84 million. From a fundamental perspective, MicroStrategy currently has a 300% premium on Bitcoin, along with the convenience of purchasing BTC after the ETF approval. In the long run, MSTR may lose its 'uniqueness premium.'
However, there are still many supporters (source: @0x_Todd) who are optimistic about MSTR, stating:
· MicroStrategy is not Luna; its safety cushion is much thicker. According to recent statistics, the average cost of MicroStrategy's Bitcoin is $49,874, which is currently close to floating profits of 100%. This is an incredibly thick safety cushion.
· MicroStrategy increases its Bitcoin holdings through bonds and stock sales. MicroStrategy borrows on the OTC market, without a liquidation mechanism. Angry creditors can at most convert their bonds into MSTR stock at a specified time and then angrily sell them into the market.
· The next debt repayment date is in 2027, which is still more than two years away. Even if MSTR drops to zero, it still does not need to be forced to sell these Bitcoins, as the earliest debt borrowed by MicroStrategy is due in February 2027.
· The only soft threat currently is Bitcoin whales, and the whales prefer a win-win situation.
