Traders betting against crypto stocks have raked in nearly $4 billion this year

Short-sellers have been cashing in on the crypto crash.

As cryptocurrency-related stocks have tanked during a deepening rout in the space, bets against companies such as Coinbase (COIN) and Microstrategy (MSTR) have proven to be a lucrative trade.

Short-sellers in the crypto sector have realized mark-to-market profits of over $3.8 billion this year as of June 14, data from S3 Partners showed. Traders betting against crypto-related stocks have realized a 126% return on an average $3 billion of short interest so far this year.

Bets against crypto stocks have made traders over $3 billion so far this year, with gains on June 13, crypto's "Black Monday," nearly totaling $400 million. (Source: S3 Partners)

The winning streak for crypto short-sellers comes as major cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD) have lost more than 50% this year, and declined to nearly 5-year lows this week.

Coinbase, Microstrategy, and Marathon Digital Holdings (MARA) had the highest short interest, per S3’s data – with bets piling up as shares of each company fell sharply

Short sellers in the crypto sector were up 126% on an average short interest of $3 billion in 2022, per data from S3 Partners Research as of June 14. (S3 Partners Research)

During Monday’s sell-off, MicroStrategy (MSTR) – the largest corporate holder of bitcoin, with more than 129,000 as of March 31 – erased roughly a quarter of its market cap, leading losses among its crypto-focused equity peers.

Shares of cryptocurrency exchange platform Coinbase (COIN), which was the most shorted among this group in June, also saw a single-day plunge of as much as 15%.

Shorting of these stocks has ramped up this month, with $71 million of new short selling in less than two weeks of June.

But while continued downturn is expected across coins and other crypto assets, anyone looking to join in on the shorts’ party may be a little too late.

“While the crypto stocks negative price momentum may not be over, the ability to short stock in size may be over,” report authors Ihor Dusaniwsky and Matthew Unterman at S3 Partners said.

With stock borrow utilization at a near-maximum 91%, short sales in size will be difficult to execute and stock borrow rates will be getting more expensive for both new and existing short sales, they noted.

“Shorting crypto stocks may continue to be a profitable trade, but due to stock borrow scarcity short exposure in these stocks will not increase dramatically in the future and shorting these stocks will become more expensive and take a bigger bite out of expected alpha,” the report notes.

Overall, 2022 has been good to short-sellers, with US equity short-sellers up 30% for the year as of mid-June, per S3 data.

The most profitable industries to short outside of crypt-related names have been automobile & components, up 54%; software and services, up 50%; and retail, up 46%.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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