Original Article Title: "Shorting MicroStrategy, Will Citron Research Lose Again?"

Original Article Author: shaofaye123, Foresight News

On November 21, Citron Research tweeted about shorting MicroStrategy stock. On one side is the Wall Street legendary short seller, and on the other is the strongest US stock of 2024. Will Citron Research lose again? This article takes you through the background of these two legendary companies.

Short selling giant Citron has always been a magical presence in the capital markets, appearing in multiple cycles. In 2012, it shorted Qihoo 360, damaging its reputation. In 2021, it was forced to cover its short position on GameStop, and in 2022, it even shorted Ethereum with a market cap of 130 billion.

Since Citron Research announced its short position on MicroStrategy yesterday, MicroStrategy's stock price plummeted, falling by as much as 30% from its daily high.

Citron Research's Shorting History

Citron Research, a prominent US short-selling institution founded in 2001, targeted 20 Chinese concept stocks over six years, leading to over 80% price drops for 15 companies and 7 companies delisting. At that time, Citron Research's momentum was strong, starting with shorting Evergrande. In its report, it wrote, "Evergrande's outcome is already determined, the only uncertainty is the timing." Eventually, Evergrande defaulted, confirming Citron's prediction.

Citron seized the spotlight. In 2021, GameStop entered the sights of various institutions for shorting. GameStop, as the world's largest game retail chain brand, was abandoned by the market at the time, losing market share to major companies. It seemed that in this battle, the short sellers would once again be victorious. However, with the emergence of the "Roaring Kitty," a thrilling short squeeze battle broke out on Wall Street. The identity behind "Roaring Kitty" was Keith Gill, although no one knew at the time. Fueled by "Roaring Kitty" and the WallStreetBets (WSB) frenzy, retail investors drove the stock from 19.95 to double at 39.91. Seeing the significantly overvalued stock price, Citron couldn't sit still. On January 19, it officially issued a short report on GME and publicly insulted retail investors who bought at high prices. Retail investors fought back, and with Musk tweeting "Gamestonk!," the stock price briefly surged to $483. In this battle, Citron Research lost 100%, liquidating its position at $90, while another hedge fund, Melvin Capital, lost up to $6.8 billion.

Following this event, Citron announced that it would abandon its 20-year short-selling research, stop releasing short reports, and shift its focus to providing long opportunities for individual investors. It seemed that the era of shorting institutions had come to an end. Major funds collapsed, and the retail investors' battle with Wall Street seemed to have achieved a final victory. However, Robinhood's decision to halt trading caused a rapid stock price decline. In the GME saga, the ultimate victory still belonged to a few.

After that, Citron did not stop shorting as it claimed and in 2022 initiated a short position on Ethereum, which had a market cap of 130 billion, and now Ethereum's market cap has tripled.

2024 Most Powerful US Stock: MicroStrategy

MicroStrategy, a company more legendary than Citron Capital, a top-tier sun strategy.

MicroStrategy was founded by Michael Saylor, Sanju Bansal, and Thomas Spahr in 1989. Initially, MicroStrategy was just a consulting firm focused on multidimensional modeling and simulation. In his younger years, Saylor was not optimistic about Bitcoin and even mocked cryptocurrencies in 2013. However, starting in 2020, MicroStrategy began exploring alternative assets to cash and used its financial assets to purchase over 21,000 bitcoins, gradually becoming the world's largest publicly traded company holder of Bitcoin. MicroStrategy systematically made significant investments in Bitcoin, including taking on debt to increase its Bitcoin holdings. Currently, the world's largest publicly traded company holder of Bitcoin, in just two years, has realized over $15 billion in profit, with trading volumes surpassing Nvidia's highest levels on a given day in the US stock market.

So what is MicroStrategy's strategy? How did they leverage massive gains?

In simple terms, MicroStrategy is currently a company solely focused on purchasing BTC. By buying Bitcoin, it drives up the price of Bitcoin, which in turn boosts its own stock price. It then borrows again to buy more Bitcoin, causing the price of Bitcoin to soar again, leading to further stock price increases. By financing additional purchases of more Bitcoin, the stock price continues to rise, and its net asset value and earnings per share also continue to increase...

This flywheel model inevitably evokes memories of Luna, whose rug pull incident still looms large. In addition, MicroStrategy currently carries a 300% premium on Bitcoin, with MSTR investors effectively paying $250,000 per Bitcoin, whereas the market price is still under $100,000. There is also a certain amount of premium in its stock price.

Shorting, Win or Lose?

Seizing this opportunity, Citron Capital once again took action, tweeting on November 21:

"Nearly four years ago, Citron was the first to tell readers that MicroStrategy (MSTR) was the ultimate way to invest in Bitcoin, setting a $700 target.

Fast forward to today: MSTR has surged to over $5,000 (adjusted). 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's fundamentals. While Citron remains bullish on Bitcoin, we have hedged our position by shorting MSTR.

"I have immense 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 of this year, another prominent institution, Kerrisdale Capital Management, also made a similar proposal, stating their intention to go long on Bitcoin but short on MSTR stock.

The shorts have once again taken action, causing MicroStrategy's stock price to plummet. Is this another Hunter family situation or will the surge continue? Is it market foresight or another misstep?

Looking at the data, the trading volume of MSTZ (inverse 2x short MSTR ETF) on November 21st surged, with a daily trading volume approaching 1.53 billion USD, compared to a previous daily average volume of 84 million USD. From a fundamental perspective, MicroStrategy now has a Bitcoin premium of 300%, coupled with the convenience of purchasing BTC through an ETF launch. In the long run, MSTR may have lost its "unique premium."

However, there are still many supporters (source: @0x_Todd) who are optimistic about MSTR, stating:

"· MicroStrategy is not Luna; its cushion is much thicker. According to recent statistics, MicroStrategy's average Bitcoin cost is $49,874, currently close to a 100% unrealized gain. This is an extremely thick cushion.

· MicroStrategy has been increasing its Bitcoin holdings through bonds and stock offerings. MicroStrategy borrowed over-the-counter leverage with no liquidation mechanism. Angry bondholders can at most convert their bonds into MSTR shares at a designated time and then angrily dump them on the market.

· The nearest maturity date for debt repayment is in 2027, still over two years away. Even if MSTR is hammered to zero, it still does not need to sell these Bitcoins forcibly because the earliest maturity date for the debt MicroStrategy borrowed is in February 2027.

· The only soft threat currently is the Bitcoin whale, and the whale prefers a win-win situation."

Original Article Link

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia