Author: shaofaye123, Foresight News
On November 21, Citron Capital tweeted claiming to short MicroStrategy stock, with one side being a legendary short-seller from Wall Street and the other side being the strongest US stock in 2024. Will Citron Capital lose again? This article will take you to understand the past behind these two legendary companies.
Citron, the giant short-seller, has always been a magical presence in the capital market, appearing in multiple cycles. In 2012, it shorted Qihoo and Sohu, damaging their reputations; in 2021, it shorted GameStop (GME) and was forced to cover; in 2022, it even shorted Ethereum, which had a market cap of $130 billion.
Since Citron Capital announced its short on MicroStrategy yesterday, the stock price of MicroStrategy fell in response, dropping 30% from its daily high.
Citron Capital's history of shorting
Citron Capital, a significant short-selling institution in the US, was founded in 2001 and has targeted 20 Chinese concept stocks over six years, leading to a stock price drop of over 80% for 15 of them and 7 delistings. At that time, Citron Capital was thriving and began shorting Evergrande. In its report, it wrote, 'The outcome for Evergrande is already determined; the only uncertainty is the timing.' Ultimately, Evergrande's collapse confirmed Citron's prophecy.
At one time, Citron was in the spotlight. In 2021, GameStop entered the shorting sights of major institutions. GameStop, as the largest game retail chain globally, was a brick-and-mortar game store. At that time, its business had already been abandoned by the market, and its share was being seized by major companies; it seemed that this battle would result in a significant victory for the shorts. However, the emergence of 'Roaring Kitty' staged an exciting short squeeze battle on Wall Street. The identity behind 'Roaring Kitty' is Keith Gill, but at that time, no one was aware. Under the fermentation of 'Roaring Kitty' and WSB, retail investors drove the stock from $19.95 to double to $39.91. Citron Capital, seeing the severely overvalued stock price, couldn't sit still. On January 19, they officially launched a short report on GME and scolded retail investors who bought high as fools. Retail investors retaliated, and with Elon Musk tweeting 'Gamestonk!', the stock price briefly soared to $483. In this battle, Citron Capital suffered a 100% loss, closing out at $90, while another capital, Melvin Capital, also lost as much as $6.8 billion.
After this incident, Citron released an announcement stating that it would abandon its 20-year 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 capital firms were defeated, and retail investors seemed to have achieved ultimate victory over Wall Street, but Robinhood's pulling the plug operation caused the stock price to plummet. In the GME incident, it ultimately remained a victory for a few.
After that, Citron did not stop shorting as it claimed; in 2022, it initiated a short on Ethereum, which had a market cap of $130 billion, and now Ethereum's market cap has tripled.
The strongest US stock MicroStrategy in 2024
MicroStrategy, a company even more legendary than Citron Capital, is a top-tier conspiracy.
MicroStrategy was founded in 1989 by Michael Saylor, Sanju Bansal, and Thomas Spahr. Initially, MicroStrategy was just a consulting company focused on multi-dimensional modeling and simulation. When Saylor was younger, he did not have a favorable view of Bitcoin and even mocked virtual currencies in 2013. However, starting in 2020, MicroStrategy began exploring alternative assets beyond cash, using its financial assets to purchase over 21,000 Bitcoins, gradually becoming the largest publicly traded holder of Bitcoin in the world. MicroStrategy has systematically made significant investments in Bitcoin, including taking on debt to increase its Bitcoin holdings. Currently, there are only two publicly traded companies that hold the most Bitcoin globally, and in just two years, the reported profits have exceeded $15 billion, with trading volume surpassing Nvidia's highest level on the same day.
So what is MicroStrategy's strategy? How does it leverage huge profits?
Simply put, MicroStrategy is a company specialized in purchasing BTC. By buying Bitcoin, it drives the price of Bitcoin up, and its own stock price rises accordingly. It borrows again to buy more Bitcoin, causing the Bitcoin price to soar again, leading to further stock price increases, and financing to purchase even more Bitcoin, resulting in continuous stock price growth, with its net asset value and earnings also consistently rising...
This flywheel model inevitably reminds one of Luna, whose explosion event still makes people uneasy. In addition, MicroStrategy currently has a 300% premium on Bitcoin, meaning MSTR investors actually paid $250,000 for each Bitcoin, while the market price is still below $100,000. Its stock price also has a certain premium.
Shorting, win or lose?
On this occasion, Citron Capital took action again, posting on Twitter on November 21, stating:
Nearly four years ago, Citron was the first to tell readers that MicroStrategy (MSTR) is the ultimate way to invest in Bitcoin, setting a target of $700.
Fast forward to today: MSTR has soared above $5,000 (adjusted). Cheers to Michael Saylor's visionary Bitcoin strategy.
Now, as Bitcoin investment becomes easier than ever, the trading volume of MSTR has completely detached from Bitcoin fundamentals. Although Citron still has a positive outlook on Bitcoin, we have hedged with short positions on MSTR.
I have great respect for Saylor, but even he must know that MSTR is overheated.
In fact, Citron was not the first 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 it wanted to go long on Bitcoin but short the stock of MSTR.
Short sellers have taken action again, and MicroStrategy's stock price has dropped as a result. Is it another Hunter family, or will it continue to rise? Is it market foresight or another mistake?
From the data, MSTZ (inverse 2x short MSTR ETF) saw its trading volume increase on November 21, with a single-day transaction volume approaching $1.53 billion, compared to an average daily transaction volume of $84 million. From a fundamental perspective, MicroStrategy currently has a 300% premium on Bitcoin, along with the convenience of purchasing BTC through ETFs. In the long run, MSTR may lose its 'uniqueness premium.'
However, there are still many supporters (source: @0x_Todd) 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, currently close to a floating profit of 100%, which is an exceptionally thick safety cushion.
MicroStrategy increases its Bitcoin holdings through bonds and selling stocks. MicroStrategy borrows over-the-counter leverage 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 most recent repayment date is in 2027, which is still more than two years away. Even if MSTR is driven down to zero, it still does not need to be forced to sell these Bitcoins because the earliest repayment date for the debts MicroStrategy borrowed is in February 2027.
Currently, the only soft threat is Bitcoin whales, but the whales prefer a win-win situation.
So, is MicroStrategy's crazy selling of Bitcoin a top strategy that spirals upward to a market cap of one trillion, or is it a dance that will eventually come to an end? I believe time will provide the answer.
