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Major short squeeze incoming for MicroStrategy stock

Major short squeeze incoming for MicroStrategy stock
Vinicius Barbosa

MicroStrategy Inc (NASDAQ: MSTR) achieved worldwide recognition due to its former CEO, Michael Saylor, passionate support of Bitcoin (BTC), the leading cryptocurrency. Now, MSTR stock could be on the edge of a short squeeze following BTC’s action.

The stock market has seen increased short interest in MicroStrategy stock, with nearly 20% of all shares in short positions. According to Fintel on March 13, MSTR’s short interest rate is currently at 19.31%, with 2,887,416 shares.

Interestingly, considering its daily volume, this would require 0.87 days to cover all short positions in the event of massive liquidations. Therefore, increasing the likelihood of a short squeeze, driving MicroStrategy’s price upwards amid a surge trigger.

MSTR stock short interest. Source: Fintel

What do analysts say about an incoming short squeeze for MSTR stock

On that note, Bitcoin Munger shared a short-squeeze alert for MSTR stock on March 12, mentioning MicroStrategy short-sellers are underwater. This account belongs to a portfolio manager and Bitcoin enthusiast, as per its self-description.

“All shorts in MicroStrategy are deeply under water. You don’t have to be a rocket scientist like [Michael] Saylor to know they will be forced to capitulate and send the stock to the moon.”

– Bitcoin Munger
MicroStrategy short data. Source: Bitcoin Munger

However, commentators like J. Fong believe the number of short positions is still low enough to trigger a major short squeeze alert.

MicroStrategy correlation to Bitcoin

In this context, understanding MicroStrategy’s correlation to Bitcoin is crucial for a thoughtful analysis. Investors consider MSTR an indirect exposure to Bitcoin’s action due to the company’s high treasury allocation to the digital commodity.

Michael Saylor, the former CEO, is a fearless Bitcoin advocate, having bought record amounts of BTC under its company’s name. In particular, MicroStrategy holds 205,000 BTC, according to Bitcoin Treasuries, worth nearly $15 billion. It is the number one public company in Bitcoin holdings, far ahead of Marathon Digital (NASDAQ: MARA), with 16,930.

Public companies that own Bitcoin. Source: Bitcoin Treasuries

On the other hand, the company has a market cap of $28.84 billion, just two times higher than its Bitcoin holdings. Consequently, MicroStrategy stock has shown a historical correlation to Bitcoin’s price, which has increased in the past few days. As of writing, MSTR trades at $1,664.82 per share, while BTC changes hand by $72,602.21.

MSTR and BTC daily price chart. Source: TradingView (Finbold)

All things considered, it is uncertain whether MicroStrategy stock will experience a short squeeze. The short-interest data shows a relevant consideration for that, but analysts may disagree on its likelihood. 

Nevertheless, continuing the Bitcoin uptrend could fuel a similar trend to MSTR due to the high correlation between both assets. A significant upward movement could trigger liquidations, in that case, starting a major short squeeze for MicroStrategy.

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