Tom Lee: Shorting MSTR has become the market's preferred hedge against declines, revealing deeper structural issues.

BlockBeats News, November 23, BitMine Chairman and CEO Tom Lee stated that a certain exchange has become the preferred tool for crypto investors to manage risk, which partly explains why its stock price has dropped 43% over the past month.

"Strategy may be the most important indicator to watch right now, 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 to directly hedge losses in the crypto market, institutional traders have turned to shorting the stock of a certain exchange. The company holds nearly 650,000 bitcoins, making its stock price closely tied to bitcoin's performance.

"In my view, when crypto market participants try to hedge losses in their bitcoin and ethereum positions, they have no other way to hedge except by shorting its liquid alternative stock—and this exchange is the best choice," Lee explained. He added that native hedging tools such as bitcoin and ethereum derivatives lack sufficient liquidity for large funds, "Any investor holding a large-scale long position in bitcoin... has very limited hedging capability in the crypto derivatives market."

But this exchange provides a workaround. "Investors can use the highly liquid options chain of this exchange to hedge all crypto asset risks," Lee pointed out. "Essentially, this exchange is absorbing all the hedging pressure generated by the entire crypto industry to protect long positions."

Lee also mentioned the lingering impact of the October 10 market crash, which wiped out $20 billions in market value and destroyed the exchange's liquidity. "This completely devastated market makers," he called market makers the "central banks" of the crypto market. Since then, systemic cracks have persisted, and the liquidity of altcoins, mining stocks, and bitcoin proxy assets such as this exchange remains thin.

In the current downturn, MSTR is one of the hardest-hit targets. Lee believes this is partly because it has taken on the role of the market's "pressure valve." He pointed out that the underlying structure of the crypto market remains fragile, and the phenomenon of this exchange becoming a hedging tool is revealing deeper structural issues.