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

BlockBeats news, 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 partly explains the 43% drop in its stock price over the past month. “Strategy may be the most important observation target at the moment, as it is both a Bitcoin proxy stock and the most liquid alternative asset,” Lee said during 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 Strategy stock. The company holds nearly 650,000 Bitcoins, which closely ties its stock price to Bitcoin's performance. “In my view, when crypto market participants try to hedge losses in their Bitcoin and Ethereum Holdings, they find no other hedging avenue apart from shorting its liquid alternative stock — and MicroStrategy is the best choice,” Lee explained. He added that native hedging tools such as Bitcoin and Ethereum derivatives lack liquidity for large amounts of capital, “any investor holding a large-scale Bitcoin long position… has very limited hedging capabilities in the crypto derivatives market.” But Strategy provides a workaround. “Investors can use the highly liquid Strategy Options chain to hedge all crypto asset risks,” 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 ongoing impact of the market crash on October 10, which wiped out $20 billion in market capitalization and destroyed exchange liquidity. “This has severely impacted market makers,” he referred to market makers as the “central bank” of the crypto market. Since then, systemic cracks have remained, and the liquidity of altcoins, mining stocks, and Bitcoin proxy assets like Strategy is still thin. In the current downtrend, MSTR is one of the most severely affected targets. Lee believes this partly stems from its role as a “pressure valve” for the market. He pointed out that the underlying structure of the crypto market remains fragile, and the phenomenon of Strategy becoming a hedging tool reveals deeper structural issues.