Short interest in Strategy Inc (MSTR) increased 40% from the low point in September 2025, representing approximately 10% of the publicly available float as bears position against the Bitcoin treasury model the software firm has pioneered.

Strategy holds 714,644 Bitcoin at an average purchase price of $76,056 per bitcoin with total acquisition costs of $54.4 billion, making it the world's largest corporate Bitcoin holder. The firm’s enterprise value is roughly 18% higher than the value of its Bitcoin holdings.

Declining stock prices have reduced convertible bond hedging activity, while falling mNAV has curtailed Bitcoin arbitrage strategies that previously drove short interest.

Bears Bet Against Bitcoin Treasury Model as Pressures Mount.

Short sellers are increasingly focused on Strategy's funding model pressures. The positioning reflects skepticism about whether Strategy can maintain its BTC yield targets without further eroding value for existing shareholders. While short interest has declined year-to-date, that likely reflects unwinds of arbitrage trades more than reduction in directional short positions.

From the low point in September 2025, short interest in MSTR increased 40%, to 30.5M shares as of February 9th. Over that span, convertible- and Bitcoin-arbitrage-related short interest likely declined, suggesting the increase in directional short positions is larger than the headline figure would suggest. One key emerging risk relates to quantum vulnerability, which has gained focus alongside developments in quantum computing technology.

We estimate 25-50% of Strategy's 30.5M share short interest relates to hedging $8.2B in convertible debt. This percentage has halved since mid-September as MSTR's declining share price pushed embedded call options further out of the money. We estimate convert arbitrage shorts declined 2.5-5M shares since mid-September, while total short interest increased 9.2M shares.

Strategy tracks mNAV (enterprise value divided by Bitcoin holdings) as a key metric. Currently at 1.18x, the stock trades at an 18% premium to Bitcoin backing. The metric swung from a 2.5x premium in late 2024 to briefly trading at a discount in January 2026, reflecting debate over whether the leveraged strategy justifies a premium.

Jim Chanos capitalized on premium compression by shorting Strategy while buying Bitcoin—"Buying something for $1, selling it for $2.50." He entered at 2.5x mNAV and closed in November 2025 at 1.2x. The metric's drop below 1.0x likely triggered profit-taking, contributing to the recovery rally on February 6. ETF outflows were likely driven in part by this arbitrage unwind. Chanos discussed the trade on the Risk and Return podcast with S3 Partners’ founder and managing partner Bob Sloan in May 2025.

The reduction in arbitrage rationale combined with 40% higher short interest suggests substantial directional short selling over the last four months. If mNAVslides to a discount for an extended period, shareholder pressure to sell Bitcoin for buybacks will likely emerge. Meanwhile, quantum computing threats to Bitcoin security have gained traction with investors. If quantum developments are viewed as negative for Bitcoin, investors can count on recurring catalysts as the technology advances. The timing of Bitcoin's sharp decline—beginning after Harvard's quantum breakthrough last November and accelerating through IBM's quantum update in earnings presentation in January—may serve as a recent example.

Want to know more? Access this data in real time using S3’s BLACK APP & BLACK MAP

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.