Metaplanet Surges Amid Bitcoin Bet and Short Squeeze Threat

Japan's top Bitcoin stock hits daily price limits as trapped short sellers face mounting losses.

Japan's top Bitcoin stock is quickly becoming one of the most talked-about equities on the bourse. It’s also the subject of a "short squeeze" threat.

The stock is quickly approaching a double in 2023, and it’s now hit its daily price limits for three days in a row on the Tokyo exchange. It's also making some U.S. retail traders furious.

But what exactly is going on with Metaplanet (OTCMKTS:MTPLF) shares?

Chart Via Trading View

At $10.82 per share (in its U.S. OTC version), the stock is trading at just over 5 times its net asset value based on Bitcoin (BTC) holdings. For comparison, Microstrategy (NASDAQ:MSTR), which is largely used as a benchmark for Bitcoin stocks, trades at only 1.75 times its Bitcoin value.

According to well-known crypto investor Richard Byworth, this makes Metaplanet "incredibly cheap" on a Bitcoin basis.

Short Sellers Are Getting Trapped

Metaplanet is the most shorted stock in Japan, with nearly 30% of its shares sold short. But because the stock price has been rising sharply, short sellers are struggling to cover their positions.

As the stock continues to hit its daily price limits, which prevent it from selling at a higher price during trading hours, short sellers are becoming increasingly desperate.

Some short sellers are now facing losses of more than 300%, and they may be unable to buy shares back at lower prices to close their bets. If the limits are lifted and the stock price surges even higher, there could be a huge price move that pushes the stock much higher—known as a short squeeze.

Strong Bitcoin Buying and Macro Trends

Metaplanet has been buying Bitcoin aggressively, and its recent purchases give it a Bitcoin yield that's over 11 times higher than Microstrategy's. This shows that the company is growing its Bitcoin holdings quickly.

In the broader markets, U.S. and Japanese government bond yields have been rising, which could lead to central banks cutting rates again. Lower interest rates usually support Bitcoin and related stocks.

Why Japanese Investors Prefer This Stock

Holding Bitcoin directly in Japan can be costly due to capital gains tax rates of up to 55% on total income. However, investing in Metaplanet via Japan's NISA accounts allows investors to avoid capital gains tax on up to about $25,000 a year.

This tax advantage is attracting many retail investors in Japan, especially as they seek to diversify their portfolios and invest in cryptocurrencies.

What's Next

Byworth suggests that if Metaplanet's price were to double to around $21, it would be valued similarly to Microstrategy on a Bitcoin asset basis. Even then, it would still be below its highest valuation in the past.

However, considering the strong buying interest from investors and the fact that short sellers are struggling to unwind their positions, the stock could see more significant moves soon.

Stay tuned for further developments.