Options flow shift bearish on crypto related stocks

Investors Watch MicroStrategy as Short Sellers React to Bitcoin’s Recent Decline

Imagine if your favorite sports team suddenly started losing, and all the fans who used to cheer started betting against them. That’s what’s happening with some investors and Michael Saylor’s crypto stocks right now.

What’s Happening with Saylor’s Stocks?

Michael Saylor is well-known for being a huge supporter of Bitcoin. His company, MicroStrategy (MSTR), has been buying lots of it. But lately, more investors are betting that the price of his company’s stock will drop. They’re doing this by buying “put” options, which make money if the stock price falls.

On Friday, for every bet that MSTR would go up, there were more than two bets it would go down. Even more, the amount of money spent on these bets was way above normal—$250 million out of $335 million spent on puts, which is three times the usual amount seen in a month.

This negative feeling is spreading to other related investments, like MicroStrategy’s special kind of stock called STRC, which Saylor once described as “digital credit.” This stock fell to its lowest price since last November, dropping 3.6% in just one day.

Why Does This Matter for Investors?

Just like in sports, when the crowd turns against a team, it can affect the whole game. For investors, when lots of people bet against a company like MicroStrategy, it can cause the stock price to fall even more. This can also hurt other investments tied to Bitcoin or crypto in general.

According to the CME FedWatch Tool, the chance of the Federal Reserve raising interest rates has gone above 40%, which makes things even tougher for risky assets like crypto and related stocks.

Bull Case: Why Some Might Still Be Positive

  • Strong Belief in Bitcoin: Saylor and his company are still major holders of Bitcoin. If Bitcoin’s price goes up again, MicroStrategy could benefit quickly.
  • Long-Term View: Some investors believe that temporary drops are just bumps in the road, and that crypto will bounce back over time.
  • Income Strategies: Funds like the YieldMax Short MSTR Option Strategy ETF (WNTR) are making money by betting against MSTR, but if the trend reverses, these positions could get squeezed.
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Bear Case: Why Some Are Worried

  • Changing Strategies: Saylor has changed his company’s plans a few times—like selling Bitcoin or buying back bonds—which makes some investors nervous.
  • Interest Rates Rising: When interest rates go up, risky assets like crypto often struggle. A J.P. Morgan study found that Bitcoin’s price tends to drop when rates rise.
  • Heavy Betting Against: With so many people betting against MSTR and STRC, it can create even more downward pressure on prices.

What’s Happening in the Bigger Picture?

This isn’t just about one company. When big names like MicroStrategy struggle, it can shake confidence in the entire crypto sector. In 2022, Bitcoin fell more than 60% in a year when interest rates rose sharply, showing how sensitive crypto can be to the broader economy (Investopedia).

Right now, with Bitcoin dipping below $60,000 and investors worried about more rate hikes, caution is spreading through the market.

Investor Takeaway

  • Keep an eye on interest rate news—rising rates can hit crypto and related stocks hard.
  • If you hold MSTR or STRC, be aware that big bets are being made against them. Think about your risk tolerance.
  • Diversify your portfolio. Don’t put all your eggs in one basket, especially in risky areas like crypto stocks.
  • Look for opportunities in funds or strategies that can benefit in both up and down markets, like WNTR.
  • Stay updated with credible sources, and don’t chase trends blindly. Sometimes, sitting on the sidelines is the smart play.

For the full original report, see CNBC

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