With the potential for a major crypto rally on the horizon, investors should consider how this shift could impact traditional markets. While many will focus on going long on cryptocurrencies, a lesser-discussed strategy is shorting equities that may decline as crypto surges. Here’s how to identify the stocks that could be at risk and how to profit from this trend.

Why Short Certain Equities During a Crypto Rally?

A strong rally in digital assets often results in capital rotation—meaning money moves away from certain sectors and into crypto-related investments. Investors looking to capitalize on this trend can identify stocks that are negatively correlated with crypto or companies that might see reduced revenues as capital flows shift.

Which Equities to Short?

If a crypto rally is coming, these sectors and stocks could be prime short candidates:

1. Banks and Traditional Financial Institutions

Crypto is often viewed as an alternative to traditional finance (TradFi). A surge in Bitcoin, Ethereum, and other cryptocurrencies could lead to capital outflows from banks and financial services. Potential short opportunities include:

• JPMorgan Chase (JPM)
• Wells Fargo (WFC)
• Bank of America (BAC)
• Visa (V) & Mastercard (MA) – since crypto adoption could reduce reliance on traditional payment networks.
• Schwab (SCHW) & Robinhood (HOOD) – unless their crypto trading activity offsets losses from traditional markets.

2. Companies That Lose Capital to Crypto Investments

When investors seek higher returns, they may pull funds from more conservative assets, including gold and bonds. This shift could negatively impact:

• Gold Mining Companies – Bitcoin is increasingly considered digital gold, so gold miners could suffer:
  • Barrick Gold (GOLD)
  • Newmont Corporation (NEM)
• Bond Funds & Dividend Stocks – As investors chase higher returns in crypto, they may sell off lower-yielding assets.

3. Crypto-Related Companies That Benefit from Bear Markets

Not all crypto stocks benefit from a rally. Some companies thrive on crypto volatility and could struggle if investors simply hold their assets rather than trade. These include:

• Coinbase (COIN) – Trading volumes often drop in long bull markets as investors become HODLers rather than active traders.
• Silvergate (SI) & Other Crypto Banks – If they don’t see the expected influx of institutional money, their financials could struggle.
• MicroStrategy (MSTR) – While it holds a massive amount of Bitcoin, its extreme volatility makes it a complex play.

4. Speculative Growth Stocks That Lose to Crypto Hype

Crypto rallies tend to draw capital away from high-growth, non-profitable tech stocks and into high-beta crypto assets. Possible short targets include:

• Cloud & SaaS Companies – Blockchain projects are increasingly offering decentralized alternatives.
• Unprofitable Tech Stocks – Those that thrive in low-rate environments but lose investors to crypto speculation.

How to Confirm the Best Short Plays

Before shorting any stock, investors should conduct due diligence:

• Historical Correlation Analysis – Look at how these stocks performed during past crypto rallies in 2017 and 2021.
• Options Market Activity – Increased put option volume could indicate bearish sentiment.
• Earnings Impact – Check if a company’s revenue streams are tied to sectors likely to be disrupted by crypto growth.

Final Thoughts

While a crypto rally can be a lucrative opportunity for long-term crypto investors, smart traders can also profit by shorting stocks that are negatively affected. By understanding capital rotation and identifying vulnerable equities, traders can position themselves to benefit on both sides of the market.

Would you short any of these stocks in anticipation of a crypto rally? Let’s discuss in the comments!