MARA Holdings: Short Squeeze Cancelled? Maybe Not

Summary MARA’s high short interest and reliance on Bitcoin make it a volatile but potentially lucrative trade, especially if Bitcoin prices rise. In sympathy with Bitcoin’s decline, MARA’s performance has been worse, with shares down over 30% year-to-date, compared to Bitcoin’s 15% drop. MARA’s short interest as a percentage of shares outstanding has surged to 27%, creating a potentially explosive short-squeeze setup IF Bitcoin rallies. MARA offers better downside protection than MSTR due to its substantial Bitcoin holdings, making it a preferable choice over MSTR given the short-covering setup. In mid-January, I asked if MARA Holdings ( MARA ) shorts should be worried. The reason for my question boiled down to MARA’s high short interest and reliance on Bitcoin ( BTC-USD ) for price appreciation in the equity price. From the closing summary of that January article: If you believe Bitcoin will continue to appreciate in price, taking a shot on MARA might not be that bad of a bet, in my opinion. But this is all reliant on the price of Bitcoin increasing essentially in perpetuity and investors’ willingness to buy share price volatility through convertible notes. I’m not sure either can continue forever. But for now, I think it’s a tough trade to fade. Well, three months later, the market’s answer to the question of whether MARA shorts should be worried was a resounding ‘no.’ The price of Bitcoin has gone down, but the performance for MARA holders has been considerably worse. Data by YCharts Year to date, MARA shares are down over 30% while Bitcoin is down a more modest 15%. I’ve covered the economics of mining Bitcoin multiple times and won’t belabor the point in this piece. If you want an update on that, you can read my recent note covering the CoinShares Bitcoin Miners ETF ( WGMI ). In this update, we’ll again look at the potential for a squeeze in MARA shares, as that setup now may be even more explosive than it was back in January. MARA’s Squeeze Setup When I wrote about MARA’s squeeze setup back in January, the shares sold short as a percentage of shares outstanding was 23%. While that 23% reading was high for what is typical for most stocks, that figure is lower than what is observed today: Data by YCharts At 92.9 million shares sold short as of March 14th, MARA’s short interest has never been higher in its history. Even when adjusting for share issuance, short interest is notable because at just under 27% of shares outstanding sold short, MARA’s short interest has been growing faster than share issuance. Furthermore, back in January, I compared the short percentage of shares outstanding in MARA with shares of Strategy ( MSTR ). Though the short percentages for those stocks have typically moved in a fairly close correlation over the last half decade, there has been a notable divergence between the two dating back to the first half of 2024: Data by YCharts That short percentage spread between the two companies has widened from 13.3 to just under 16. And this comes with the percentage of shares outstanding in MSTR just off lows, while MARA is quickly approaching short position levels that have typically marked share price lows in the past. Consider the multi-year inverse relationship between MARA’s share price and the percentage of the company’s outstanding shares sold short: Data by YCharts After MARA’s short percentage went parabolic in 2022, MARA shares rose over 400% from the start of 2023 through the July peak that year. After falling from over 40% down to about 20% that summer, short percent once again spiked higher, with short share percent ripping back up to 30% around September of that year. Again, this spike in short percent marked another share price low, and MARA shares pulled off another 300% return from October through December 2023. Last fall we saw a very similar setup play out again when the short percentage eclipsed 25%. That peak in short percentage preceded a 127% MARA gain in less than three months. MARA vs MSTR The concept of ‘BTC backing’ is something that I’ve explored in the past when covering Bitcoin mining stocks. The way to think about this is how much BTC each company has relative to its market capitalization. It’s another way to look at something like ‘sats per share’ but by taking out the dollar-denominated share price variable. In the past, we’ve seen Hut 8 ( HUT ) have the largest Bitcoin stack relative to its market cap. Today, MARA has the largest ‘sat backing’ of the large US mining stocks at a 94% BTC/Market Cap backing: ‘BTC Backing’ MARA MSTR BTC Value $3.7 billion $41.5 billion Market Capitalization $4.0 billion $71.2 billion mNAV Multiple 1.06 1.72 BTC/Market Cap 94% 58% Source: Bitcoin Treasuries To me, this gives MARA shares better downside protection relative to something like MSTR which still trades at a 72% premium to mNAV, or Bitcoin holdings as a percentage of market cap. The key question is whether Bitcoin has a rally in it from here, as that is the primary catalyst that would give MARA shorts a reason to cover their positions. In my view, there are indeed some positive indications from Bitcoin’s daily chart: BTC Daily Chart (TrendSpider) First, the market has finally explored some price discovery between the $76-88k per coin range. This was something that I highlighted back in late-February when Bitcoin failed to launch to new highs. That BTC has pulled back into that range and bounced around between the low and top end of it is positive. Also, positive is that BTC is (barely) holding on to the 300-day MA at $78.3k. Maybe the biggest reason to expect a relief rally from here in BTC is the bullish RSI-14 divergence that has taken place between late-Feb and early-April. This would be indicative of seller exhaustion in the Bitcoin market. I think we’re very close to a relief rally in both broad equity markets and in Bitcoin. If I’m right, I believe MARA shares will provide leverage to BTC since the company operates a BTC-denominated business. Closing Summary Admittedly, playing MARA for a short-squeeze can be a dangerous game, and there is certainly no guarantee that the future has to mimic the past. But for traders who are looking for opportunity in a market that has seen the Nasdaq ( COMP:IND ) puke by over 25% in a little over one month at session lows on April 7th, playing a short-covering rally in MARA shares could generate a significant return in a relatively short period of time. In the event that the market finds a bottom in the Qs, something like Bitcoin should out-perform the index. And in the event BTC out-performs the index, Bitcoin-proxy stocks like MARA or MSTR figure to out-perform the index as well. Choosing between the two, I like MARA because of its ‘Bitcoin floor.’ At a market cap that is ‘94% backed’ by BTC, I think MARA is the better pick today. But I’ll be very clear; trying to pick bottoms for bounces in what could be a larger trend reversal is risky. Just because MARA’s shares have rallied in the past with similar short percentage setups, it doesn’t mean it has to happen again. The key is Bitcoin moving higher, and that is far from a guarantee in a market that is still digesting ‘Liberation Day’ tariffs. It’s important to be mindful of position sizing and exercise discipline when considering setups like the one I’ve just described.

Source: Seeking Alpha