MicroStrategy has been a magnet for short sellers since it pivoted to Bitcoin in 2020. But, while there has been significant short pressure, the stock hasn’t seen a major price spike due to shorts being squeezed.
This is an interesting record, since short interest has built significantly, at one point reaching 51% of shares available for trading.
Given the massive interest in shorting this stock, is a major short squeeze on the horizon?
MicroStrategy’s Short Squeeze History: A Rocky Road for Michael Saylor
Michael Saylor has faced a lot of criticism and fanfare since he pivoted to investing in Bitcoin in 2020. Some call him arrogant, and his strategy a brain-dead move. Others applaud the strategic shift and, judging by the price of his stock since 2020, many agreed with it and put their money behind his bet.
Since the start of 2020, his stock has rocketed from about $12 to over $300 per share. That’s an incredible 25x price increase. But the path to $300 has not been smooth.
The stock first rocketed up from $12 to $103 in early 2021, as BTC moved roughly 10x in March of that year. The increase in stock price attracted short sellers who thought the stock was badly overvalued.
Betting against a stock because it’s overvalued is usually a bad move, since investors can stay irrational longer than you can stay solvent, and it’s usually a bad idea to short a stock that has the potential to rise 10x.
Still, shorts seemed to win the battle as MicroStrategy’s stock dropped 60% from February to May of 2021, and then declined another 64% by mid-2022.
In August 2022, MSTR shares rallied 14% despite a $917.8 million impairment charge on Bitcoin holdings, potentially due to short sellers covering positions after a record 51% of shares were shorted. This event was speculated to be a short squeeze, as bearish bets were crowded during a crypto downturn.
By the end of the year, the stock was trading at just over $14, a bit more than it started the 2020s at. For the time being, short sellers were seen as correct that Saylor bet the company on a risky strategy, and his company was grossly overvalued. Bitcoin had just crashed, and there was strong bearish sentiment during the downturn.
But shorts were not content with their win. Short interest held steady at about 51% of the float as the stock dropped until the end of 2022. But this is where the party ended. As shorts began to cover their bets, the stock rallied from $14 to $28 per share – wiping out a lot of the gains short sellers had made – as short sellers raced for the exit.
By the end of January, short interest was down to just 17%. Short interest kept dropping slowly over the course of the year, reaching about 15.5% of the float by the end of 2023.
Since then, short interest has built up in the company, reaching a high of 24% in May 2024, but nothing like what investors saw in 2022. As at the start of 2025, short interest in the company sat at just 12-15% of the float.
Could MicroStrategy See A Short Squeeze Today?
While it’s always possible that we could see a short squeeze in MicroStrategy in the near future, it won’t happen today. With a short interest of just about 15%, shorts could comfortably exit their positions without having a huge impact on the stock price. For a short squeeze to take place, we really need to see a higher short interest – at least 20% of the public float.
Potential For A MicroStrategy Stock Short Squeeze
A MicroStrategy short squeeze is definitely not off the table. Actually, anyone who likes to take advantage of short squeezes should keep an eye on the company.
Whether you’re a Bitcoin fan or not, you have to admit that BTC is a highly volatile commodity. It sees massive price spikes and rallies over a short period of time. Add to that the fact that a lot of people think that MicroStrategy is overvalued relative to its BTC holdings, and it’s easy to see how short sellers could pile on the stock again to force its price down and make some cash.
And that’s really where the opportunity lies. If we get into a situation here, there’s another large BTC bear market, short sellers could be attracted to the stock, and we may see them pile on to the point where they again make up a large percentage of the float.
With a large short interest in the company, shrewd special situation investors could take the other side of that bet, expecting a sharp reversal for the stock if a bit of good news hits and shorts clamour out of the stock.
But that’s not today.
Instead, investors should turn their focus to taking advantage of any number of other special situations: spin offs, merger arb, activist bets, etc. Some of these situations have the potential for very large short term stock price spikes… exactly what we see in a short squeeze.
So, where do you find these opportunities?
I recommend signing up for our free Morning Brew newsletter, where we send you each and every special situation stock that we come across. Enter your email in the box below because we take all the work out of finding these situations for you.
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