Is BlackRock's increased stake in MicroStrategy brewing a black swan? Why are many people starting to short Ethereum?

Source: Talking Li, Talking Outside

I came across an interesting article. According to CoinDesk, in a recent 13G filing, BlackRock (BLK) disclosed that it currently holds 5% of MicroStrategy (MSTR), equivalent to about 11.2 million shares. As of September 30, 2024, this represents an increase of 0.91% from the previous 4.09% stake, as shown in the figure below.

BlackRock's IBIT is currently the largest BTC ETF, with assets under management exceeding $56 billion at the time of writing. As shown in the figure below.

MicroStrategy is the largest institutional holder of Bitcoin, currently holding 471,107 Bitcoins on its balance sheet, with an asset value exceeding $4.5 billion (average purchase cost of about $64,524) at the time of writing. As shown in the figure below.

It can be said that both are giants, and their movements will have a significant impact on Bitcoin's trajectory.

1. A Strong Alliance or Brewing a Black Swan?

So, we may need to continue pondering a question: Are they looking to form a strong alliance to further achieve the goal of U.S. control over Bitcoin? Or is one of them using capital to create a façade while secretly plotting a black swan event for Bitcoin?

Let’s speculate on the scenario (Note: This is purely hypothetical):

The first scenario is continued acquisition until BlackRock completely controls MicroStrategy. In this case, they would not only become the world's largest BTC ETF fund but also the institution holding the most Bitcoin in spot.

The second scenario involves creating a façade while secretly maneuvering. For example, they could first manipulate Bitcoin's price to drop, then BlackRock could take the opportunity to start selling MicroStrategy's stock, continuing to create panic, forcing MicroStrategy to sell its own Bitcoin, and gradually buying back the sold Bitcoin at lower prices, ultimately leading to MicroStrategy's bankruptcy and leaving BlackRock as the sole giant.

If the second scenario occurs, it would undoubtedly be a new black swan event for the market, potentially leading to a chain reaction of market crashes, and even BlackRock might not be able to save the situation, resulting in a rapid market collapse (similar to the previous FTX crash). However, as the saying goes, fortune favors the bold; capital never considers sentiment.

Of course, the above is just a flight of fancy about possible scenarios. Personally, I will still strictly adhere to my position plan and will not be influenced by any news. As for how the market will specifically unfold in the future, it still requires time to verify. But we should clarify one thing: assuming (Note: This is purely hypothetical) that a black swan event occurs, who will ultimately be the real winner?

Interestingly, just yesterday (February 9), MicroStrategy's founder Michael Saylor hinted in an interview that he would destroy the Bitcoin private keys after his death to ensure that his Bitcoin would never be sold. As shown in the figure below.

As mentioned before, all of the above is speculation, guesswork, and hypothesis. I cannot predict how institutional giants will position themselves, but as previously mentioned in Talking Li, we have always kept 10% of our position as a bullet to respond to major black swans. If the second hypothetical scenario truly occurs, we will not hesitate to use the last 10% of our reserved position to buy Bitcoin when the market collapses, and then continue to hold it.

If we set aside short-term perspectives and abandon the idea of making quick money, for instance, by looking at 5 years or 10 years… then buying Bitcoin at any time now is not expensive!

2. What Does the Increase in Ethereum Short Positions Mean?

According to on-chain data, the current Unhedged Short has reached a relatively high position, even the highest in nearly a year, indicating that the market's bearish sentiment is very strong. As shown in the figure below.

However, as mentioned in our article a few days ago, there is an interesting phenomenon: on one hand, the price of ETH is plummeting, while on the other hand, ETF funds are continuously flowing in, even reaching record inflows. As shown below.

In just the past week of trading days (from February 3 to February 7, Eastern Time), the net inflow into ETH ETFs was $420 million, with the largest inflow being BlackRock's ETH ETF (ETHA), which had a weekly net inflow of $287 million.

Moreover, if we continue to monitor ETH's trading volume, we can also find that despite the price drop, the trading volume has remained strong, with two notable time points:

First, around January 21, before and after Trump's inauguration, ETH's trading volume surged significantly.

Second, after ETH's sharp decline on February 3, the trading volume also saw a significant spike.

However, as of now, after a week has passed, ETH's price seems to show no signs of recovery. When BTC rebounds, ETH remains stagnant; when BTC declines, ETH follows suit, and many people's patience is wearing thin.

At the time of writing, ETH's price is still hovering around $2600, which represents a drop of about 46% compared to the peak of the last bull market. As shown in the figure below.

This raises a question worth pondering: Why are people (hedge funds) so keen to short Ethereum?

If it were in the past, we might understand the shorting, as ETH could have been labeled a security by the SEC at any time. However, with the crypto-friendly President Trump taking office, the WLFI (World Liberty Financial) under the president's family is also buying ETH.

Although a few days ago, some KOLs online were confidently shouting that the president sold ETH and caused a crash, signaling a bear market… people only saw that WLFI publicly transferred its coins to Coinbase; did you see the president selling coins for US dollars?

However, as described by a partner in the group: seeing your favorite man in such a place, although rationally, he may not really do that, it still makes one feel uncomfortable.

Alternatively, let’s consider the issue from a more benevolent perspective. If I were WLFI and wanted to continue buying ETH in large quantities, I wouldn't publicly disclose my trading records. The more I buy, the more retail investors will blindly follow; why should I provide a clear signal to help retail investors?

If you believe in the saying "A man's words are deceitful," then whether WLFI is a bad actor is something you need to judge for yourself. As shown in the figure below.

Returning to the main topic, as mentioned above, whether from the perspective of ETF fund inflows or "policy" (including ETH being the first altcoin to pass the U.S. spot ETF), the situation is much better than before. But why is it still despised by many retail investors?

This reason can be viewed from several angles:

From the retail investor's perspective, the vast majority only look at price fluctuations; if it rises, it's a bull market and should be bought; if it falls, it's a bear market and should be scorned.

From the market perspective, this could be a complex and comprehensive issue, such as possible operations from hedge funds, market manipulation by large institutions, insufficient innovation in Ethereum itself… and so on.

Of course, perhaps institutions are playing a bigger game, or they may have already prepared for a downturn (crash). When they haven't accumulated enough chips (influence), they won't follow historical patterns to help retail investors who are blindly seeking quick profits.

From the current ETH/BTC exchange rate, ETH's performance has severely lagged behind BTC, even returning to 2020 levels, as shown in the figure below.

Additionally, from the current weekly candlestick chart, ETH's trend also seems unfavorable. For example, the RSI moving average appears to have started a downward trend, as shown in the figure below. However, one point to note is to try to make a simple comparison with the lines around the week of May 6, 2024.

Given the current complex overall situation, will ETH experience a "short squeeze" next?

We do not provide an answer here, as everyone may have a different answer; we leave it for everyone to ponder.

Supplementary Knowledge: What is a short squeeze?

When there are a large number of investors shorting the market, if the market suddenly rises, these short traders will face losses and be forced to buy back (cover their short positions). This large-scale forced buying will further push up the token price, resulting in a short squeeze.

While respecting the market, maintain a certain level of patience. If you don't want to lose money in volatility, then seriously consider your risk tolerance and strictly manage your position according to your risk preference.

That's all for today. Best wishes~