Can Xiangyuan Capital win this time by shorting Micro Strategy publicly?

Original Title: “Shorting Micro Strategies, Will Citron Capital Lose Again?”

Original author: shaofaye123, Foresight News

On November 21, Citron Capital tweeted that it was shorting MicroStrategy stocks, with one side being the Wall Street legend shorts and the other being the strongest US stocks in 2024. Will Citron Capital lose again? This article takes you through the history behind these two legendary companies.

Short giant Citron has always been a magical presence in the Capital Market, with its shadow appearing in multiple cycles. In 2012, Short damaged the reputation of Qihoo 360, in 2021 Short forced GameStop to Close Position, and in 2022 it even shorted Ethereum with a market value of 130 billion.

Since Citron Capital announced its short position on MicroStrategy yesterday, the stock price of MicroStrategy has plummeted, falling by as much as 30% from the daily high.

The history of Citron Capital short selling

Citron Capital, a prominent short-selling institution in the United States, was founded in 2001. In six years, it successively targeted 20 Chinese concept stocks, leading to a drop of over 80% in stock prices for 15 companies and delisting for 7. At that time, Citron Capital was at the peak of its influence and began shorting Evergrande. In its report, it stated, ‘The ending of Evergrande is already predetermined, the only uncertainty is the timing.’ The eventual collapse of Evergrande indeed confirmed Citron’s prediction.

For a while, the citron was in the limelight. In 2021, Game Station entered the Short vision of major institutions. Game Station, as the world’s largest game retail chain brand, is an offline game provider. At that time, its business had been abandoned by the market and was seized by major companies, and it seemed that the bears would win this battle again. But the birth of “Growling Cat” staged a wonderful short squeeze battle for Wall Street. The identity behind “Roaring Cat” was Keith Gill, but unbeknownst to everyone at the time, retail investor doubled the stock from 19.95 to 39.91 under the fermentation of “Roaring Cat” and WSB. Citron Capital looked at the seriously overvalued stock price and couldn’t sit still. On January 19, the Short report on GME was officially launched, and retail investors who bought stocks at a high price were called fools. Retail Investor fought back, accompanied by Musk’s tweet “Gamestonk!” , and the stock price rushed to $483 at one point. In this battle, Citron Capital lost 100% and went out at the $90 Close Position, while another capital, Melvin Capital, also lost as much as 6.8 billion.

After the event, Citron announced that it would abandon its 20-year short research, no longer issue short reports, and shift its focus to providing long trading opportunities for individual investors, seemingly marking the end of the era of short selling institutions. Major capital firms were defeated, and the retail investor battle against Wall Street seemed to have achieved final victory, but Robinhood’s operation of pulling the plug caused the stock price to plummet. In the GME incident, victory still belonged to the few.

After that, Citron did not stop shorting as it said, and in 2022, it initiated a shorting of ETH with a market cap of 130 billion, and now the market cap of ETH has tripled.

2024 Strongest US Stock Micro Strategy

MicroStrategy, a more legendary company than Citron Capital, is a top-notch strategy.

MicroStrategy was founded by Michael Saylor, Sanju Bansal, and Thomas Spahr in 1989. Initially, MicroStrategy was just a consulting company focusing on multidimensional modeling and simulation. When Saylor was young, he was not optimistic about BTC and even ridiculed Virtual Money in 2013. However, starting in 2020, MicroStrategy began exploring alternative assets outside of cash and used its financial assets to purchase over 21,000 BTC, gradually becoming the largest publicly listed company holder of BTC worldwide. MicroStrategy systematically made significant investments in BTC, including taking on debt to increase its BTC holdings. Currently, it is the publicly listed company with the largest BTC holdings globally, with a nominal profit of over 15 billion USD in just two years, and its trading volume surpassing the highest level of the day for both NVIDIA and the US stock market.

So what is the strategy of MicroStrategy? How does it leverage huge benefits?

Simply put, the current micro-strategy is a company that specializes in buying BTC. By purchasing BTC, it drives the BTC pump, and its own stock price also rises. It then borrows again to buy BTC, the BTC price soars again, the stock price further pumps, financing again to buy more BTC, the stock price continues to pump, and its net assets and earnings per share continue to rise…

This flywheel mode cannot help but remind people of Luna, and its thunderbolt incident always leaves a lingering fear. In addition, MicroStrategy currently has a 300% premium on BTC, and MSTR investors actually paid $250,000 per BTC, which is less than $100,000 at the market price. Its stock price also has a certain premium.

Short, win or lose?

In this context, Lemon Capital once again made a move and tweeted on November 21st:

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

Fast forward to today: MSTR has surged to over $5000 (adjusted). Salute to Michael Saylor’s visionary BTC strategy.

Now, with BTC investment becoming easier than ever, MSTR’s volume has completely detached from BTC fundamentals. While Citron remains bullish on BTC, we have hedged our position by shorting MSTR.

“Very much respect Saylor, but even he must know that MSTR is overheated.”

In fact, Citron is not the first company to suggest shorting MSTR to hedge its riseBTC position. In March of this year, another well-known institution, Kerrisdale Capital Management, also made a similar suggestion, saying it wanted to go long on BTC, but short MSTR’s stock.

The bears are making another move, and MicroStrategy’s stock price is falling in response. Is it another Hunt family or a continued pump? Is it market foresight or another mistake?

From the data, the trading volume of MSTZ (Reverse 2x Short MSTR ETF) on November 21st rose, with a daily turnover approaching 1.53 billion US dollars, compared to the previous daily average turnover of 84 million US dollars. From a fundamental perspective, MicroStrategy now has a 300% premium over Bitcoin, accompanied by the convenience of buying BTC after the ETF is approved. In the long run, MSTR may lose its ‘unique premium’.

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

“MicroStrategy is not LUNA, its security cushion is much thicker. According to recent statistics, the average cost of MicroStrategy’s BTC is $49,874, and it is currently approaching a floating profit of 100%, which is an extremely thick security cushion.”

MicroStrategy increases its BTC holdings through bonds and stock sales. MicroStrategy borrows over-the-counter leverage, without the Get Liquidated mechanism. Angry creditors can at most convert their bonds into MSTR stocks at a designated time, then angrily dump them into the market.

· The next debt repayment date is in 2027, still over two years away. Even if MSTR drops to zero, it still does not need to be forced to sell these BTC, because the earliest maturity date for the debt borrowed by MicroStrategy is in February 2027.

· The only soft threat at the moment is BTCWhale, and Whale prefers a win-win situation.