The wolf is coming? Big short Citron will continue to short ETH

Recently, Citron Research, a well-known short-selling institution, stated on its official Twitter that the FBI did not investigate the second largest donor to the Democratic Party (SBF), allowing a person so close to the government to gain influence, and even failing to check tax returns, which poses a national security issue.

Citron also said, "For those victims or account holders, they want decentralization, but how do they feel when your remittances are transferred to the Bahamas?" This has once again ignited its enthusiasm for short selling. Citron will continue to short ETH. They believe that this token with a market value of 130 billion US dollars has many common sense flaws, just like the story of SBF.

After nearly two years, short selling resumes

Citron Research is a relatively influential short-selling organization in the United States. It was founded in 2001. Its predecessor was called Stocklemon. It was founded by Andrew Left, a Jew with many years of trading experience.

"Lemon" in English means something bad, which was also Andrew's original intention to set up the website, specializing in short-selling stock investigations. Later, he felt that the name was too direct, so he used the French word "lemon" (Citron) instead.

The methods usually used by Citron for short selling include: first, thoroughly investigating the loopholes and gaps caused by the differences in financial audits between China and the United States, mainly including false reporting of sales revenue, etc.; second, checking the improper behavior of corporate executives; third, monitoring whether the company complies with procedures and reports to regulatory agencies and public investors on a regular basis as required.

Among the more than 150 short-selling reports released by Citron, more than 50 US companies covered by its research have become targets of regulatory intervention, including technology companies and bio-health companies such as Raser Technologies and Bio-Heal Laboratories. In addition, Citron has also sniped 20 Chinese concept-listed companies in six years, causing 15 of them to see their share prices fall by more than 66% and 7 to be delisted, which has also allowed it to accumulate a rich record in short-selling and terminal business models.

However, in the retail investors' short squeeze of GME (GameStop's stock) in early 2021, Citron Research suffered the Waterloo of its 20-year short-selling career. Many Wall Street funds including Melvin Capital and Citadel also suffered a complete defeat. Retail investors under the banner of WallStreetBets became famous in the U.S. stock market.

Subsequently, on January 29, 2021, Citron founder Andrew Left publicly announced that he would end his twenty-year short-selling career, stop short-selling research, focus on long opportunities, and provide retail investors with long-term long-term investment opportunities.

But now, less than two years later, Citron announced that it would return and continue to short ETH, and all this was affected by the recent FTX crash, which rekindled its enthusiasm for shorting. Citron believes that ETH, with a market value of $130 billion, must have many common sense flaws like FTX.

After Citron released the short-selling news at 2:59 on November 15, the market was shaken within a minute. According to the Coinglass ETH full-network contract liquidation data, more than $2.2 million of long orders were liquidated during this period, while the short orders were less than $50,000.

The bearish sentiment towards cryptocurrencies has been around for a long time, but they don’t understand decentralization

However, after Citron Research commented on the FTX incident and released news about shorting ETH, it was ridiculed by many investors.

“Do you think FTX is decentralized? It is a centralized exchange where users’ assets are managed by people on a stupid exchange. Interestingly, all debts owed by FTX on a decentralized platform have been repaid in full. Why? Because DeFi and smart contracts hold borrowers accountable no matter what.”

Another investor said that you can short sell, but why is your winning rate always like flipping a coin? He also posted the investment returns of Citron Research in the past year.

Some even went so far as to expose Citron’s scars: “It’s like you know the benefits of shorting GME better than anyone else.”

In fact, Citron Research did not start shorting ETH recently, it has been shorting cryptocurrencies for a long time.

An investor said that the last time ETH fell to $1,150, Citron publicly shorted it on Twitter, claiming that ETH would fall to $200 (although this is still very expensive). However, ETH prices rebounded three days later and broke through $1,600 in about two months.

In addition, in the middle of this year, Citron also posted his views on cryptocurrencies and BTC and ETH on Twitter many times.

Citron said that there are a lot of frauds in the crypto world. BTC has a collective simplicity of perceived value, which is the choice of some people, but it has no practicality. ETH or smart contracts have no place in the complex world we live in. Its main use is to purchase online collectibles, but its market value is as high as 140 billion US dollars.

“And then there are the VCs in Silicon Valley who collectively sell the concept of Web3, but they will never be held accountable for the statements they sold to the unsuspecting public over the past few years.”

The former "Wall Street bounty hunter"

The reason why Citron Research is so pessimistic about encryption is largely due to its founder Andrew Left.

When asked at a conference about the financial markets he considered to be potentially fraudulent, Andrew bluntly told the audience: “I think crypto is a complete fraud over and over again.”

Although the media later commented that Andrew started his career with good intentions of exposing controversial companies, unfortunately, as the GME incident showed, he still seems to be thinking about things in an overly limited way of thinking that relies on a set of values ​​that are about to become outdated. But now it seems that Andrew's views on encryption have not changed.

However, this time, retail investors did not buy into Citron Research's short statement on ETH, although the crypto market is currently in a bear market and the FTX incident has caused continuous shocks in the industry.

In addition, this radical big short seller and "Wall Street bounty hunter" also encountered considerable trouble with regulation, and his fund partners also fell into the quagmire of regulation.

Last December, the FBI raided Andrew Left's home as the U.S. Department of Justice launched a broad criminal investigation into short selling by hedge funds and research firms, including Citron. There is evidence that Andrew's Citron Reports was a tool for those illegal short selling hedge funds, although Andrew denied any wrongdoing.

In response, the Department of Justice also subpoenaed records related to nearly 30 Citron investment and research companies, including Gabe Plotkin, founder of Melvin Capital, Nate Koppikar of Orso Partners, Nate Anderson of Hindenburg Research, and other financial giants. In May of this year, Melvin Capital, which had $8 billion in AUM, chose to close its fund due to huge losses in the GME incident.

Therefore, it is foreseeable that although Citron Research has loudly declared shorting ETH this time, its impact on the crypto market will be very limited in both the short and long term.

However, it reflects that the FTX incident in the crypto field has indeed affected a wide range of people, has spread to the traditional financial circle and caused a huge impact, and has also caused great concerns among regulators. However, it is hoped that while regulators intervene and fill the regulatory gaps, they can conduct more effective market supervision and leave room for innovation for crypto practitioners.