Original title: (Short selling MicroStrategy, will Citron lose again?)
Original author: shaofaye123, Foresight News
On November 21, Citron Capital tweeted that it was shorting MicroStrategy stock, with one side being Wall Street's legendary short seller and the other being the strongest US stock in 2024. Will Citron Capital lose again? This article takes you to understand the past of these two legendary companies.
Citron Capital, a giant in short selling, has been a remarkable presence in the capital market, appearing in multiple cycles. In 2012, short selling Qihoo and Sohu damaged its reputation; in 2021, it was forced to close its short position on GameStop; in 2022, it shorted Ethereum with a market cap of $130 billion.
Since Citron Capital announced its short position on MicroStrategy yesterday, MicroStrategy's stock price has fallen sharply, retreating 30% from its daily high.
The history of Citron Capital's short selling
Citron Capital, a prominent short-selling institution in the US, was founded in 2001 and has targeted 20 Chinese concept stocks over six years, leading to a decline of over 80% in stock prices for 15 of them, with 7 delisting. At that time, Citron Capital was on the rise and began shorting Evergrande. In its report, it stated, 'Evergrande's outcome is already determined; the only uncertainty is the timing.' Ultimately, Evergrande's collapse confirmed Citron's prediction.
For a time, Citron was unstoppable. In 2021, GameStop entered the short-selling radar of major institutions. GameStop, as the world's largest game retail chain, was being abandoned by the market, with major companies capturing its market share. It seemed that in this battle, the shorts would prevail. However, the emergence of 'Roaring Kitty' led to an exciting short squeeze on Wall Street. The identity behind 'Roaring Kitty' is Keith Gill, but at the time, no one knew. Under the influence of 'Roaring Kitty' and WSB, retail investors pushed the stock from $19.95 to double to $39.91. Looking at the severely overvalued stock price, Citron couldn't sit still. On January 19, it officially launched a short selling report on GME, cursing retail investors who bought at high prices as fools. Retail investors fought back, and with Musk tweeting 'Gamestonk!', the stock price soared to $483. In this battle, Citron suffered a 100% loss, exiting at $90, while another firm, Melvin Capital, lost as much as $6.8 billion.
After this event, Citron issued a statement indicating that it would abandon its 20-year short-selling research, no longer publish short reports, and shift its focus to providing long trading opportunities for individual investors. It seems the era of short-selling institutions has come to an end. Major capitals have collapsed, and retail investors seem to have achieved the final victory against Wall Street, but Robinhood's disconnection operation caused stock prices to plummet. In the GME incident, it ultimately remains a victory for a few.
After that, Citron did not stop short selling 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 in 2024: MicroStrategy
MicroStrategy, a company even 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 youth, Saylor was not optimistic about Bitcoin and even mocked virtual currencies in 2013. But 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 Bitcoin holder in the world. MicroStrategy systematically made significant investments in Bitcoin, including taking on debt to increase its Bitcoin holdings. Currently, it is the publicly traded company with the most Bitcoin holdings worldwide, having made over $15 billion in profits in just two years, with trading volumes exceeding Nvidia's highest levels on the US stock market on the same day.
So what is MicroStrategy's strategy? How does it leverage enormous profits?
In simple terms, the current MicroStrategy is a company specifically purchasing BTC. By buying Bitcoin, it boosts the price of Bitcoin, which in turn raises its own stock price. It again borrows to purchase Bitcoin, leading to another surge in Bitcoin prices, further increasing its stock price, and financing to purchase more Bitcoin, causing the stock price to continue rising, while its net asset value and earnings keep increasing...
This flywheel model inevitably brings to mind Luna, whose explosion event remains haunting. Additionally, MicroStrategy currently has a 300% premium on Bitcoin, with MSTR investors actually paying $250,000 for each Bitcoin, while the market price is less than $100,000. Its stock price also has a certain premium.
Short selling, win or lose?
On this occasion, Citron Capital took action again, announcing on Twitter on November 21:
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 surged above $5000 (adjusted). A salute to Michael Saylor's visionary Bitcoin strategy.
Now, with Bitcoin investment becoming easier than ever, MSTR's trading volume has completely detached from Bitcoin fundamentals. While Citron still holds a positive outlook on Bitcoin, we have hedged by shorting MSTR.
I have great respect for Saylor, but even he must know MSTR is overheated.
In fact, Citron is not the first to suggest hedging bullish Bitcoin positions by shorting MSTR. In March this year, another well-known institution, Kerrisdale Capital Management, also proposed a similar suggestion, stating they want to go long on Bitcoin but short MSTR stock.
The shorts have taken action again, and MicroStrategy's stock price has responded with a drop. Is this another Hunter family or a continuous rise? Is it market foresight or another mistake?
From the data, MSTZ (inverse 2x short MSTR ETF) saw its trading volume rise on November 21, with daily trading volume approaching $1.53 billion, compared to an average daily trading volume of $84 million previously. From a fundamental perspective, MicroStrategy currently has a 300% premium on Bitcoin, accompanied by the convenience of purchasing BTC after the ETF passes. 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; it has a much thicker safety cushion. According to recent statistics, the average cost of MicroStrategy's Bitcoin is $49,874, which is currently close to a floating profit of 100%. This is an extremely thick safety cushion.
· MicroStrategy accumulates Bitcoin through bonds and stock sales. MicroStrategy borrows from the over-the-counter leverage and has no liquidation mechanism. Angry creditors can convert their bonds into MSTR stock at a specified time and then angrily sell them in 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 does not need to be forced to sell these Bitcoins, as the earliest repayment date for the debt MicroStrategy borrowed is in February 2027.
· The only soft threat right now is Bitcoin whales, and the whales prefer to see a win-win situation.
Original link
