Short COIN/Long BTC Trade Will Be a Winner as Soaring Coinbase Nears Overvaluation: 10x Research

Shares successful Nasdaq-listed cryptocurrency speech Coinbase (COIN) are accelerated approaching an overvaluation threshold, 10x Research, headed by Markus Thielen, said Friday. Thielen is recommending a brace commercialized that comprises a abbreviated presumption successful COIN and a simultaneous agelong presumption successful bitcoin BTC.

In a enactment sent to clients, Thielen explained that Coinbase's fundamentals, chiefly trading volumes, haven't kept gait with the rally successful stock prices, which are accelerated nearing the overvaluation threshold, a classical setup for a "tactical reversal."

"While Coinbase hasn’t rather breached the +30% overvaluation threshold, it’s approaching fast, and contempt being 1 of the fewer high-quality, listed crypto plays, its existent premium suggests the hazard of underperformance ahead," Thielen detailed. "Traders looking to capitalize connected this dislocation mightiness see going agelong Bitcoin portion shorting Coinbase, oregon utilizing options by selling a COIN telephone and buying a BTC telephone to explicit the aforesaid presumption with defined risk."

Fundamental disconnect

According to 10x's linear regression model, 75% of Coinbase's banal terms enactment is explained by bitcoin's terms and trading volumes. That means conscionable 25% of COIN's terms enactment is led by different factors, specified arsenic the imaginable interaction of Circle's IPO oregon U.S. crypto and macro developments.

In quantitative terms, it suggests that COIN's terms tends to emergence by $20 for each $10,000 determination successful BTC and by $24 for each $100 cardinal summation successful trading volume.

The caller terms enactment suggests the rally is overextended comparative to bitcoin's terms and trading volumes. Shares successful Coinbase person surged 84% implicit the past 2 months, portion bitcoin has risen by conscionable 14%.

"Not lone is this premium stretched comparative to bitcoin’s existent price, but it besides appears disconnected from underlying crypto trading volumes, which are hovering astir $108 billion," said Thielen. "This uncommon deviation suggests Coinbase’s valuation is extended and susceptible to mean reversion."

The study said that different factors – Circle’s IPO connected June 3, the June 17 “GENIUS” stablecoin measure and the buying frenzy from Korean investors – look to person been priced in.

"As this momentum cools, evident successful the caller reversals of Circle, KakaoPay, and Metaplanet, determination is increasing hazard that Coinbase shares could besides beryllium nearing a section top," Thielen said.