I've never understood the hedgies' penchant for pair trades: long this / short that is supposed to be some kind of big brain move that either outperforms something or hedges out the risk – like I said, I don't always grok them, maybe because I don't have an MBA in finance.

To be clear, when I see one I usually do understand the overall thesis – what I don't understand is the way they seem to put an upside ceiling on returns if you're right. It probably makes sense to do this when you manage other people's money.

But a TradFi firm called Kerrisdale Capital has a pair trade on that, may seem counter-intuitive at first glance.

It's long Bitcoin, and short miners – specifically RIOT Blockchain (Nasdaq: RIOT).

They have a separate trade on that's short MicroStrategy (Nasdaq: MSTR), also long Bitcoin.

The long Bitcoin half of each trade, according to their pinned tweet, is a hedge. The short side is against MicroStrategy for being an inferior proxy to Bitcoin, especially now that ETFs are here, and in Riot's case? Well they've declared war on Bitcoin mining:

"Our investment thesis is that this sector is not going to be around in five years. Bitcoin mining is one of the stupidest business models we've come across in our time short selling over the past 15 years."
— Kerrisdale Capital CIO Sahm Andrangi

One of the cornerstones of Kerrisdale's short thesis is that MSTR (and the miners) go up more than Bitcoin when there is no reason for them to. Especially now that the spot ETFs are here, both the miners and MSTR are inferior proxies to Bitcoin.

If they're right – miners go to zero, so will Bitcoin – I assume they make more money on the RIOT (and MSTR) shorts than they lose on the Bitcoin.

If they're wrong – and the miners and MSTR continue to outperform Bitcoin, they will get destroyed on their shorts, while the upside from their hedge – Bitcoin,  by their own thesis, is going to lag (this is the part of the pair trade I'm having issues understanding, unless maybe they're levering up?).

I think what's confusing me is that the side of their pair trade that means they're right already has limited upside. Shorts can only go to zero, your upside is capped at 100%, unless you're using leverage to enhance that – in which case you're risk is even higher.