Tom Lee: Shorting MSTR has become the market's preferred hedge against a downturn, a phenomenon that has uncovered deeper structural issues

On November 23rd, Tom Lee, the chairman and CEO of BitMine, stated that MicroStrategy has become the preferred tool for cryptocurrency investors to manage risks. This partly explains the reason for its stock price dropping by 43% in the past month. ["Strategy may be the most important focal point at the moment as it is both a Bitcoin proxy stock and the most liquid alternative asset,"] Lee said in an interview with CNBC on Thursday. Due to the limited tools available for directly hedging losses in the crypto market, institutional traders have turned to shorting the stock of Strategy. The company holds nearly 650,000 bitcoins, closely tying its stock price to Bitcoin's performance. ["In my view, when cryptocurrency market participants try to hedge their losses in Bitcoin and Ethereum holdings, they can't find any other hedging avenue except shorting its liquid alternative stock—and MicroStrategy is the best choice,"] explained Lee. He added that native hedging tools like Bitcoin and Ethereum derivatives lack liquidity for large funds. ["Any investor holding a significant Bitcoin long position... has very limited hedging capability in the crypto derivatives market."] However, Strategy provides a workaround. ["Investors can utilize the highly liquid Strategy options chain to hedge their entire cryptocurrency asset risk,"] Lee pointed out. ["Essentially, Strategy is absorbing all the hedging pressure generated by the entire crypto industry to protect long positions."] Lee also mentioned the lasting impact of the October 10 market crash, which wiped out $20 billion in market value and destroyed exchange liquidity. ["This severely hit market makers,"] he referred to market makers as the ["central banks"] of the crypto market. Since then, systemic fissures have been persistent, and the liquidity for Bitcoin proxy assets like altcoins, mining stocks, and Strategy remains thin. Amid the current downturn, MSTR is one of the hardest-hit targets. Lee believes this partly stems from its role as the market's ["pressure valve."] He pointed out that the underlying structure of the crypto market remains fragile, and the phenomenon of Strategy becoming a hedging tool is revealing deeper structural issues.