The crypto stocks Wall Street hates most, as short-sellers ramp up interest in the harsh winter

Data from S3 Partners provided to Fortune show that short-sellers—that is, investors who borrow a company’s stock to sell in the public market with the expectation of buying it back later on the cheap—have piled up their chips against publicly traded, cryptocurrency-adjacent stocks in June, with short interest rising 13.04% as of Tuesday.

Coinbase, the largest and only public crypto exchange in the U.S., has seen the amount of shares shorted in its stock increase by $291 million this month, bringing its short interest as a percentage of the stock’s float to 20.97%, according to S3, a financial data analytics company. Michael Saylor’s MicroStrategy, which has stockpiled troves of Bitcoin on its balance sheet, is now operating with 41.82% of its floated stock shorted. And short interest in Marathon Digital’s stock has climbed 9.84% in June so far to 25.22% for the Bitcoin mining company.

“There’s been no capitulation on the short-sale market,” S3 Partners managing director Ihor Dusaniwsky tells Fortune.

And for good reason.

In a bear market—especially one that comes on the heels of a decade-long period where, other than for the COVID-19-induced selloff in late spring 2020, stocks of all kinds have gone on a rip-roaring ride higher—there are always bound to be plenty of opportunities for short-sellers. A recent report from S3, in fact, shows that shorts are up 54% against media and entertainment companies in 2022, as of June 14. Bets against companies in the software and services business have jumped 50%. And in the automotive and components sector, shorts are seeing gains of about 54%, according to S3.

However, crypto stands apart.

The market's decline may have been slow at first, with token prices and stocks related to crypto falling right alongside other more traditional assets like tech stocks and IPOs. But crypto's fall has steepened in the last few months as the Federal Reserve accelerates its fight against inflation and fears of contagion spread throughout the cryptoverse. Globally, the value of crypto currently sits at about $900 billion, down from a high of $3 trillion seven months ago.

Short-sellers are up 118% in mark-to-market gains year to date, as of June 21, on the 15 crypto-based stocks tracked by S3, as a result, Dusaniwsky says. The resulting swell of short-seller interest has been so fast and furious, in fact, that the amount of shares available for investors to borrow and short has quickly evaporated. Of the crypto-linked companies tracked by S3, 95% of lendable securities available have already been doled out to short-sellers—meaning it will be more difficult going forward for investors to short crypto stocks.

But there are other options for the crypto-dubious: On June 21 ProShares, the exchange-traded fund manager behind BITO, the first Bitcoin-futures-based ETF listed in the U.S., launched a companion product to offer investors the option of going short Bitcoin futures. Aptly named the ProShares Short Bitcoin Strategy ETF, BITI, as the ETF is known, inversely tracks the S&P CME Bitcoin Futures Index. Volumes in the ETF have been muted so far compared to BITO's launch in the fall, but BITO was one of the biggest ETF debuts ever. BITI is also offering a simpler way to short Bitcoin, one that's readily available on brokerage apps like Robinhood, Fidelity, and Interactive Brokers—meaning it won't just be professional investors involved.

"We are aware that there are many investors who have a bearish view of Bitcoin," ProShares CEO Michael Sapir tells Fortune. "But other ways of getting short exposure to Bitcoin can be difficult and expensive. With BITI, we're giving investors a convenient and cost-effective way of putting their bearish view of Bitcoin into action by buying an ETF with a ticker in a conventional brokerage account."

There are plenty of other "red flags" throughout crypto that are bound to be uncovered in the coming months, after all, says Nate Anderson, the activist short-seller who was at the forefront of shedding a light on concerns about the once high-flying electric-vehicle maker Nikola back in 2020.

For Anderson, who has "small" short positions in Coinbase and MicroStrategy, crypto's fall was always a question of when, not if, given what the Hindenburg Research founder says are the market's core issues: "fundamentally flawed projects, fraud, and extreme leverage."

"It created this galaxy of nonsense," says Anderson, who has also been an outspoken skeptic of the world's largest stablecoin, Tether, though Hindenburg has not amassed a position against it to date, "which I'm sure felt great when the market was expanding but it was inevitably collapsed into this black hole that has sucked out $2 trillion of market value so far. I don't think it's over. The dominoes are just beginning to fall."

Correction, June 29, 2022: A previous version of this article misstated that the BITI ETF launched June 22 and how the BITO ETF is structured.