Author: shaofaye123, Foresight News
On November 21, Citron Capital tweeted that it was shorting MicroStrategy's stock; on one side is a Wall Street legendary short-seller, and on the other is the strongest U.S. stock in 2024. Is Citron Capital going to lose again? This article will take you through the history behind these two legendary companies.
Short-selling giant Citron has always been a remarkable presence in the capital markets, appearing in multiple cycles. In 2012, shorting Qihoo and Sohu damaged its reputation; in 2021, it was forced to cover its short on GameStop; and in 2022, it even shorted Ethereum, valued at $130 billion.
After Citron Capital announced its short position on MicroStrategy yesterday, MicroStrategy's stock price fell in response, dropping 30% from its daily high.
Citron Capital's short-selling history
Citron Capital, a major short-selling firm in the U.S., was founded in 2001 and targeted 20 Chinese concept stocks over 6 years, leading to a drop of over 80% in 15 of them, with 7 delisted. At that time, Citron Capital was gaining momentum and began shorting Evergrande. In its report, it stated, 'The outcome for Evergrande is already determined; only the timing is uncertain.' Ultimately, Evergrande collapsed, confirming Citron's prophecy.
For a time, Citron was at its peak. In 2021, GameStop entered the short-selling sights of major institutions. GameStop, as the world's largest game retail chain, was already abandoned by the market at that time, with its business being seized by major companies. It seemed that the shorts would win again. However, the emergence of 'Roaring Kitty' staged a spectacular short squeeze on Wall Street. The identity behind 'Roaring Kitty' is Keith Gill, but at that time, no one knew. Under the influence of 'Roaring Kitty' and WSB, retail investors pushed the stock from $19.95 to double at $39.91. Seeing the severely overvalued stock price, Citron couldn't sit still. On January 19, it officially launched a short report on GME and scolded retail investors who bought at high prices as fools. Retail investors retaliated, and with Musk tweeting 'Gamestonk!', the stock price soared to $483. In this battle, Citron Capital lost 100%, exiting at $90, while another capital, Melvin Capital, also suffered a loss of up to $6.8 billion.
After this incident, Citron announced that it would abandon its 20-year short research, no longer publishing short reports, and would shift its focus to providing long trading opportunities for individual investors. It seems that the era of short-selling institutions is coming to an end. Major capital has been defeated, and retail investors' battle against Wall Street seems to have achieved a final victory, but Robinhood's pulling of the plug caused stock prices to plummet. In the GME incident, the ultimate victory still belonged to a few.
Since then, Citron has not stopped 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 U.S. stock in 2024: MicroStrategy
MicroStrategy, a company more legendary than Citron Capital, is a top-level conspiracy.
MicroStrategy was founded in 1989 by Michael Saylor, Sanju Bansal, and Thomas Spahr. Initially, MicroStrategy was just a consulting company focused on multidimensional modeling and simulation. In his younger years, Saylor was not optimistic about Bitcoin and even ridiculed 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 world's largest publicly traded Bitcoin holder. MicroStrategy has systematically made significant investments in Bitcoin, including taking on debt to increase its Bitcoin holdings. In just two years, it has become the publicly traded company with the most Bitcoin holdings, with a paper profit exceeding $15 billion and trading volume surpassing Nvidia's peak level on that day.
So what is MicroStrategy's strategy? How does it leverage massive profits?
In simple terms, MicroStrategy is currently a company specializing in purchasing BTC. By buying Bitcoins, it drives up Bitcoin prices, which in turn boosts its stock price. It again borrows money to buy Bitcoins, Bitcoin prices soar again, and its stock price further rises, financing again to purchase more Bitcoins, leading to a continuous increase in its stock price, net asset value, and earnings.
This flywheel model inevitably reminds one of Luna; its collapse is still a haunting memory. Additionally, MicroStrategy currently has a 300% premium over Bitcoin, with MSTR investors effectively paying $250,000 for each Bitcoin, while the market price is less than $100,000. Its stock price also carries a certain premium.
Short selling, win or lose?
On this occasion, Citron Capital took action again, tweeting on November 21:
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 has become easier than ever, MSTR's trading volume has completely detached from Bitcoin's fundamentals. Although Citron still has a positive outlook on Bitcoin, we have hedged our position by shorting MSTR.
I have great respect for Saylor, but even he must know that MSTR is overheated.
In fact, Citron is not the first to suggest hedging a bullish Bitcoin position by shorting MSTR. In March this year, another well-known institution, Kerrisdale Capital Management, made a similar suggestion, stating they want to go long on Bitcoin but short MSTR's stock.
The shorts are taking action again, and MicroStrategy's stock price has responded by falling. Is it another Hunter family or a continued rise? Is it market foresight or another misstep?
From the data, MSTZ (the 2x inverse short MSTR ETF) saw an increase in trading volume on November 21, with a single-day trading volume nearing $1.53 billion, while the average single-day trading volume was $84 million. Fundamentally, MicroStrategy currently has a 300% premium over 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, saying:
MicroStrategy is not Luna; its safety cushion is much thicker. According to recent statistics, MicroStrategy's average cost for Bitcoin is $49,874, currently approaching a floating profit of 100%. This is an extremely thick safety cushion.
MicroStrategy increases its Bitcoin holdings through bonds and stock sales. MicroStrategy borrows off-exchange leverage, which has no liquidation mechanism. Angry creditors can only convert their bonds into MSTR stock at a specified time, then angrily sell it into the market.
The next debt repayment date is in 2027, which is still more than two years away. Even if MSTR falls to zero, it does not need to be forced to sell these Bitcoins, as the earliest debt that MicroStrategy borrowed needs to be repaid by February 2027.
Currently, the only soft threat is the Bitcoin whales, and the whales prefer a win-win situation.
So, is MicroStrategy's massive Bitcoin selling a top strategy that spirals into a market cap reaching one trillion, or is it a dance that will ultimately come to an end? I believe time will provide the answer.
