Tom Lee: Shorting MSTR has become the preferred instrument for hedging against market falls, and this phenomenon reveals deeper structural issues.

On November 23, BitMine Chairman and CEO Tom Lee stated that MicroStrategy has become the preferred tool for crypto investors to conduct risk management, which partially explains its stock price decline of 43% over the past month. “Strategy may be the most important observation target right now because it is both a Bitcoin proxy stock and the most liquid alternative asset,” Lee said in an interview with CNBC on Thursday. With limited tools available for directly hedging losses in the crypto market, institutional traders have turned to shorting Strategy stock. The company holds nearly 650,000 Bitcoins, closely tying its stock price to Bitcoin performance. “In my view, when crypto market participants try to hedge losses in Bitcoin and Ethereum holdings, they find no other hedging avenue besides shorting its liquid alternative stocks—MicroStrategy is the best choice,” Lee explained. He added that native hedging tools like Bitcoin and Ethereum derivatives lack liquidity for large funds, “any investor holding a large-scale long position in Bitcoin… has very limited hedging capabilities in the crypto derivatives market.” However, Strategy provides a workaround. “Investors can leverage the highly liquid Strategy options chain to hedge all crypto asset risks,” Lee pointed out, “effectively, Strategy is absorbing all the hedging pressure generated by the entire crypto industry to protect long positions.” Lee also mentioned the ongoing impact of the market crash on October 10, an event that wiped out $20 billion in market capitalization and destroyed exchange liquidity. “This severely hit market makers,” he referred to market makers as the “central bank” of the crypto market. Since then, systemic cracks have persisted, and liquidity for altcoins, mining stocks, and Bitcoin proxy assets like Strategy remains thin. In the current downturn, MSTR is among the hardest-hit assets. Lee believes this partly stems from its role as the “pressure valve” for the market. He noted that the underlying structure of the crypto market remains fragile, and the phenomenon of Strategy becoming a hedging tool reveals deeper structural issues.