Author: shaofaye123, Foresight News

On November 21, Citron Capital tweeted that it was shorting MicroStrategy stock. On one side is a Wall Street legendary short-seller, and on the other is the strongest U.S. stock of 2024. Is Citron Capital going to lose again? This article takes you through the past of these two legendary companies.

The short-selling giant Citron has always been a remarkable presence in the capital market, appearing in multiple cycles. In 2012, it shorted Qihoo and Sohu, damaging their reputations. In 2021, it was forced to cover its short position on GameStop, and in 2022, it even shorted Ethereum, which had a market value of $130 billion.

Since Citron Capital announced its short position on MicroStrategy yesterday, the stock price of MicroStrategy has dropped in response, falling 30% from its daily high at one point.

Citron Capital's Short-Selling History

Citron Capital, a significant short-selling institution in the U.S., was founded in 2001. Over six years, it targeted 20 Chinese concept stocks, leading to a decline of over 80% in 15 of them, with 7 delisted. At that time, Citron was thriving and began shorting Evergrande. In its report, it stated, "The outcome for Evergrande is already determined; only the timing is uncertain." Ultimately, Evergrande collapsed, confirming Citron's prediction.

For a time, Citron was unstoppable. In 2021, GameStop entered the sights of major short-sellers. GameStop, as the world's largest video game retail chain, was being abandoned by the market, with major companies seizing its market share. It seemed that the shorts would win again. However, the emergence of "Roaring Kitty," whose real identity is Keith Gill, led to an exciting short squeeze on Wall Street. At that time, no one knew who "Roaring Kitty" was, but under the influence of "Roaring Kitty" and WSB, retail investors drove the stock price from $19.95 to a double of $39.91. Seeing the severely overvalued stock price, Citron couldn't sit still. On January 19, it officially launched a short report on GME and called retail investors who bought at high prices "fools." Retail investors retaliated, and with Elon Musk tweeting "Gamestonk!", the stock price surged to $483 at one point. In this battle, Citron lost 100%, covering its position at $90, while another firm, Melvin Capital, lost as much as $6.8 billion.

After this incident, Citron announced that it would abandon its 20-year short-selling research, no longer publish short reports, and shift its focus to providing long trading opportunities for individual investors, seemingly marking the end of the short-selling institution era. Major capital firms were defeated, and it seemed that retail investors had achieved a final victory over Wall Street, but Robinhood's decision to pull the plug caused the stock price to plummet. In the end, the GME incident was still a victory for a few.

Afterward, Citron did not stop short-selling as it claimed. In 2022, it initiated a short position on Ethereum, which had a market value of $130 billion, and now Ethereum's market value has tripled.

The Strongest U.S. Stock of 2024: MicroStrategy

MicroStrategy, a company even more legendary than Citron Capital, is a top-tier scheme.

MicroStrategy was founded in 1989 by Michael Saylor, Sanju Bansal, and Thomas Spahr. Initially, MicroStrategy was just a consulting firm focused on multidimensional modeling and simulation. In his youth, Saylor was not optimistic about Bitcoin and even mocked virtual currencies in 2013. However, starting in 2020, MicroStrategy began exploring alternative assets beyond cash, purchasing over 21,000 Bitcoins with its financial assets, gradually becoming the largest publicly traded holder of Bitcoin in the world. MicroStrategy systematically invested heavily in Bitcoin, including taking on debt to increase its Bitcoin holdings. Currently, it is the publicly traded company with the most Bitcoin holdings globally, and in just two years, its paper profits have exceeded $15 billion, with trading volumes surpassing Nvidia's peak levels on the U.S. stock market.

So what is MicroStrategy's strategy? How does it leverage enormous profits?

In simple terms, MicroStrategy is currently a company that specializes in purchasing BTC. By buying Bitcoin, it drives up the price of Bitcoin, which in turn raises its own stock price. It then takes on more debt to buy Bitcoin, causing the Bitcoin price to soar again, further increasing its stock price, and financing to purchase even more Bitcoin, leading to a continuous rise in its stock price, net asset value, and earnings…

This flywheel model inevitably reminds one of Luna, whose collapse still haunts many. Additionally, MicroStrategy currently has a 300% premium on Bitcoin, meaning MSTR investors are effectively paying $250,000 for each Bitcoin, while the market price is less than $100,000. Its stock price also carries a certain premium.

Shorting: Win or Lose?

In this context, Citron Capital has once again taken 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 target of $700.

Fast forward to today: MSTR has soared to over $5,000 (adjusted). Hats off to Michael Saylor for his visionary Bitcoin strategy.

Now, as Bitcoin investment has become 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.

We have great respect for Saylor, but even he must know that MSTR is overheated."

In fact, Citron is not the first to suggest hedging bullish Bitcoin positions by shorting MSTR. In March of this year, another well-known firm, Kerrisdale Capital Management, also made a similar suggestion, stating that it wanted to go long on Bitcoin but short MSTR stock.

Short-sellers have taken action again, and MicroStrategy's stock price has responded by falling. Is this another Hunter family situation or a continued rise? Is it market foresight or another misstep?

From the data, MSTZ (the 2x inverse short MSTR ETF) saw its trading volume rise on November 21, with daily trading volume approaching $1.53 billion, compared to an average daily trading volume of $84 million previously. From a fundamental perspective, MicroStrategy currently has a 300% premium on Bitcoin, coupled with the convenience of purchasing BTC through ETFs. In the long run, MSTR may have lost its "uniqueness premium."

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

"MicroStrategy is not Luna; its safety net is much thicker. According to recent statistics, MicroStrategy's average cost for Bitcoin is $49,874, currently close to a floating profit of 100%, which is an extremely thick safety net.

MicroStrategy increases its Bitcoin holdings through bonds and stock sales. MicroStrategy borrows through over-the-counter leverage, with no liquidation mechanism. Angry creditors can at most convert their bonds into MSTR stock at a specified time and then angrily dump it on the market.

The most recent debt repayment date is in 2027, which is still more than two years away. Even if MSTR were to crash to zero, it still wouldn't need to be forced to sell these Bitcoins, as the earliest debt repayment date for MicroStrategy is in February 2027.

The only soft threat currently is Bitcoin whales, and the whales prefer a win-win situation."

So, is MicroStrategy's aggressive selling of Bitcoin a spiral strategy that ultimately drives its market value to reach a trillion, or is it a dance that will eventually come to an end? Time will tell.

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