The increase in bitcoin price has been met with skepticism by short sellers, who have recently increased bets against Bitcoin Investment Trust. Short interest is also rising in firms which have enjoyed a halo effect based on their involvement in the cryptocurrency or their use blockchain.

• GBTC is the closest to a pure-play short on the cryptocurrency
• Payment processing firms also in crosshairs
• OSTK: Old short, new thesis

Grayscale's Bitcoin Investment Trust (ticker: GBTC) is currently the most pure play bitcoin trade listed on an equity exchange, as it invests solely in Bitcoin. Since the start of October short demand has increased over 60%, compared with GBTC price increasing over 150%. Pressing against the trend has caused the value of the short position to increase to over $110 million. Aside from the bet against BTC price the shares of the trust were also trading at a premium to asset value, which has been pointed out as part of the motivation for shorting the vehicle. Short seller Andrew Left tweeted on Thursday that the premium to asset value had "evaporated", and noted that he had entered a short position "cautiously".

While it's important to distinguish between the value of bitcoin and firms utilizing blockchain technology, the buzz surrounding both has caused some large price increases which short sellers are betting will come back to earth.

Shares of Square Inc have advanced over 180% year to date, but are off the Nov 24^th high. The payment processor appears to be caught up in the bitcoin frenzy, with shares advancing 6% on Nov 21 alone when they announced they would allow users to buy and sell bitcoin. Short sellers have not pressed on the price decline in recent weeks, and have reduced exposure on the margin. Another payment processor which has been targeted by short sellers is Vantiv Inc, which has a short position valued at just under $2.5B. One area of concern for utilizing Bitcoin in a payment transfer context is the heightened volatility and trading costs. For example online video game firm Steam announced that they would no longer accept bitcoin payments as the result of volatility and trading fees, issuing a press release stating "it has become untenable to support Bitcoin as a payment option."

Those familiar with the history of short selling in the US will recall Overstock.com, a popular short in 2005 before the founder went on a crusade against naked short sellers, which resulted in settlements with broker dealers and hedge funds. In 2015 Overstock purchased brokerage firm SpeedRoute and announced its intension to revolutionize securities trading through the application of blockchain technology. The business unit, rebranded tZero, also has a securities lending which aims to address the CEO Patrick Byrne's concerns regarding that market. As blockchain has come into vogue this year shares of OSTK have advanced over 160%, which has attracted short sellers who assume the valuation has overstated the impact of the technology on the firm's bottom line. Short demand is at a post-crisis high just below 30% of outstanding shares.

Sam Pierson, Director, Securities Finance, IHS Markit
Tel: +1 646 679 3045
samuel.pierson@ihsmarkit.com

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.