Seeking Alpha
2024-05-22 00:00:00

Crypto Rises And Shorts Shatter

Summary The price of Bitcoin was above $70,000 this morning for the first time in over a month. Ethereum prices are up double-digit percentage points (11% as of this writing) on renewed ETF optimism. Using the Grayscale Bitcoin Trust as a proxy, Bitcoin prices are currently trading at the high end of this year's range. As we first noted in today's Morning Lineup, while equities are having a snoozer of a session, crypto prices are rallying. Although it has come off the high, the price of Bitcoin ( BTC-USD ) was above $70,000 this morning for the first time in over a month. Meanwhile, Ethereum ( ETH-USD ) prices are up double-digit percentage points (11% as of this writing) on renewed ETF optimism. As shown below, using the Grayscale Bitcoin Trust ( GBTC ) as a proxy, Bitcoin prices are currently trading at the high end of this year's range. Typically, it goes without being said that crypto prices are highly volatile given the asset is at one of the more extreme ends of the risk spectrum. In a similar boat are the most heavily shorted stocks. Those "meme stocks" were also recently in the spotlight as they saw a temporary resurgence last week. In the chart below, we show the relative strength line of GBTC versus an index of the 100 most heavily shorted Russell 3,000 members over the past year. For the most part, GBTC has outperformed the most heavily shorted stocks. However, beginning in mid-March, that relationship swapped to those highly shorted names beginning to outperform Bitcoin. That hit a pinnacle one week ago as stocks like GameStop ( GME ) began giving up the ghost, and since then that relative strength line is back to favoring GBTC. Although last week had reminiscences of the 2021 meme stock mania, one interesting difference was the relationship with crypto prices and those short squeeze names. Using the same groups as above, below we show the rolling 50-day correlation between GBTC and the most heavily shorted stocks. As shown, for most of the past several years, Bitcoin has tended to have a decent positive correlation with price action in the most heavily shorted stocks. In other words, crypto prices and heavily shorted stocks generally moved in the same direction on a given day. That positive correlation has been present recently, although it got a dent on the meme stock surge. Again, that hit to the correlation has been merely a dent as it stands in stark contrast to January 2021 (or even various other points of the past year) when the two had historically uncorrelated moves. Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.