Strategy(MSTR.US)Becomes the most shorted stock in U.S. stocks, arbitrage trading comes to light

According to data from FactSet and Goldman Sachs, billionaire Michael Saylor’s Strategy company (MSTR.US), a major Bitcoin holder, is being “heavily shorted” — a market term indicating strong bets on a continued decline in stock price. However, some analysts suggest that this positioning may not reflect investors’ expectations of a sustained drop in the stock price.

Last week, Goldman Sachs released a report indicating that, based on tracked metrics, Strategy’s (MSTR.US) short positions amounted to about 14% of its $34 billion market value at the time, making it the stock with the highest short ratio in the report. During the same period, Coinbase (COIN.US), a cryptocurrency exchange, ranked fourth with an 11% short interest. The report tracked stock positions of companies with market caps over $25 billion.

This shorting trend occurs amid Strategy’s Bitcoin holdings, which have unrealized losses of approximately $7 billion. Since incorporating Bitcoin into its balance sheet in 2020, the company has accumulated 717,722 BTC, currently valued at about $47 billion. As of press time, its market cap is approximately $44.52 billion, despite a 12% decline in stock price this year. Meanwhile, Bitcoin reached a peak of $126,080 per BTC on October 6, but as of press time, it was trading at $66,653.26 per BTC.

Reports indicate that analysts attribute the rise in short positions to basis trading strategies — a method that profits from price differences between related markets. Specifically, traders can buy Bitcoin spot ETFs (such as BlackRock’s IBIT) and short Strategy stock, arbitraging when Strategy’s premium over its Bitcoin holdings narrows. When combined with paired futures contracts, traders can also earn additional funding rate income while maintaining market-neutral positions.

Brian Brookshire, an expert at Bitcoin asset management firm, said, “I suspect that much of the short interest still stems from MSTR/BTC basis trading. Especially since top market maker Jane Street has recently built an unusually large IBIT position.”

According to the latest 13F filings, Jane Street has purchased over 7 million shares of BlackRock’s iShares Bitcoin Trust (IBIT), and at the same time held significant Strategy stock positions.

Notably, Anchorage Digital co-founder and CEO Nathan McCauley disclosed on February 25 that the digital bank has allocated Strategy’s perpetual preferred stock STRC (STRC.US) on its balance sheet.