The investor who bet on new cryptocurrencies valuations in 2022 bitter big losses, but those who bet on the fall did well. According to US data analysis firm S3, those who bet on the devaluation recorded profits of up to 130%.
Who revealed this information was Ihor Dusaniwsky, head of analysis at S3. This type of trade, known as short, outperforms any investment of the year so far.
For comparison purposes, bets against tech stocks saw gains of 50%. But the market had less than half the performance of the short against cryptocurrencies.
In addition to the fall of cryptocurrencies itself, the good performance of betting on the fall is in the stock market itself. The shares of companies linked to the market, such as MicroStrategy and Coinbase, fell sharply in 2022 – and those who bet against them also made money.
Sellers did well
As reported by Bloomberg, Dusaniwsky used data that exclusively analyzes short positions, that is, sales. Therefore, his analysis considers who bet on the market crash.
In most cases, investors who make this operation use derivatives, such as options and futures markets. They can also rent shares and sell them, then buy back cheaper when the asset’s price drops.
In this sense, Dusaniwsky evaluated short positions between three sectors and listed their positions. The sectors, in addition to cryptocurrencies and tech stocks, were automotive, media and entertainment stocks.
Those who traded betting on the fall of shares in the automotive sector profited 50%, the same as in the technology sector. Already bets against the media and entertainment sectors yielded profits of up to 46%.
Bets on stocks like Coinbase and MicroStrategy, which are more exposed to the cryptocurrency sector, yielded the biggest profits. Since the beginning of the year, the shares of the exchange and the software company are down 80% and 66%, respectively.
To give you an idea, MicroStrategy’s shares came to give returns of 400% between 2020 and 2021, when the company started investing its cash in BTC. Today, the company holds over 130,000 BTC and has the highest exposure among companies listed on the exchange.
Interest rate hike impacted market
Both cryptocurrencies and the stocks of companies in the sector have suffered from the new interest rate policy of the Federal Reserve (Fed). To combat inflation, the US central bank adopted a tighter monetary policy, with three rate hikes in 2022 alone.
Of these increases, two were large by Fed standards: 0.5% and 0.75% – the latter was the largest single increase since 1994. The increases caused a lot of volatility in the equity market, which impacted the price. of cryptocurrencies.
At the same time, several funds and lending platforms ran out of liquidity and even stopped their withdrawals, which increased investor fear. This, in turn, led to more sales and price drops, benefiting the operations of those who bet on the fall.
Recently, the United States Securities and Exchange Commission (SEC) approved the launch of an ETF that bets on the fall of BTC. That is, the fund’s shares appreciate in value as the price of BTC falls, allowing skeptical investors to profit from the cryptocurrency’s devaluation.