Running In Circles

Companies that recently IPO’d can be short targets for traders. Many recent IPOs like Circle Internet Group (CRCL), Coreweave (CRWV), Smart Digital (SDM) and AIRO (AIRO), have seen remarkable boosts in their stock price followed by sharp downturns in the past 2 – 5 days.

If a company’s stock surges after the IPO and traders believe the company is overvalued, they may short the stock. However, there is often a lack of shortable shares during the first few days of trading. 

On the Listing Date, shareholders who are eligible to sell, including those allocated shares in the IPO, may do so.  Participants in the secondary market purchase the sold shares.  Generally, shorting is not available on Listing Date because brokers cannot provide a locate.  The shares have not yet been delivered to brokers’ accounts at the depository, also known as the broker’s “box.”  Shares are generally delivered on Settlement Date (Trade Date + 1 business day or “T+1”).  The “Billing & Delivery” Underwriter delivers shares allocated during the IPO.  Shares bought in the secondary market are delivered like any other stock trade.  Except that, generally, the secondary market delivery cannot be made until after the underwriter’s primary market delivery.

Even after all the shares are received, brokers can have a processing time before making them available to short.  For example, it may take another day or two for shares to flow through to brokers’ fully-paid lending programs.

The lack of shares to short tends to boost the borrow fee, especially if the stock is trading significantly above its Public Offering Price (“POP”).

Why is the back-office plumbing of the financial system important to traders?  Because in this case, it limited traders’ ability to short a recent IPO. Circle Internet Group (CRCL) is based in New York and is one of the largest stablecoin issuers in the world.  It offers two main types of stablecoins: one pegged to the US dollar (USDC) and another to the euro (EURC). While the crypto industry grows at unpredictable rates, stablecoins have found their own niche that are becoming more widely adopted by the public and draws increasing amounts of investor interest.

CRCL’s successful IPO priced at $31, started trading on the NYSE at $69 and closed at $83.23 on June 5^th. However, Circle was no exception to the patterns seen among recent IPOs, with borrow fees ranging from 6% to 50%. Despite the bearish outlook of fast-money traders who wanted to short CRCL, the stock continued to increase in price over the next 10 days to $150.

On June 17^th, Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which established a framework for the regulation of stablecoins: requiring monthly disclosures and subjecting issuers to anti-money laundering (AML) requirements. While it may have seemed that new regulatory requirements would be interpreted as restrictive, they instead greatly boosted stocks including Circle (CRCL) and Coinbase (COIN) because regulation may lead to wider adoption. The new regulations increase the chance of banks and other financial services companies buying, holding and transacting stablecoins, thereby raising demand for them.

Following the passing of the GENIUS Act, Circle share prices soared: climbing to $290 on June 23^rd. This sharp peak in price brewed short sentiment, and simultaneously, availability of Shortable Shares decreased as inventory was taken down by borrowers.

CRCL Short History (6/5/2025-6/27/2025)

Source: IBKR Trader Workstation (TWS) – Fundamentals Explorer – Short Selling

Past performance is not indicative of future results

Following the rally, the price dropped below $200 dollars at the close of June 25^th. Since then, the stock has seen erratic price changes.

CRCL Stock Price (6/5/2025)

Source: IBKR Trader Workstation (TWS)

Past performance is not indicative of future results

Short sellers will likely continue to follow CRCL given the dramatic price increase over a brief timeline, and as stablecoins continue to make headlines.

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Originally Posted on July 1, 2025