What to know:

• Coinbase stock is nearing an overvaluation point, leading 10x Research to suggest a strategy of shorting COIN and going long on Bitcoin.
• Over the past two months, Coinbase’s shares have surged by 84%, significantly outpacing a mere 14% increase in Bitcoin trading volumes.

Coinbase (COIN), the cryptocurrency exchange listed on Nasdaq, is reportedly approaching a critical overvaluation threshold, as identified by 10x Research. Markus Thielen, the head of 10x Research, recommended taking a short position on Coinbase shares while simultaneously investing in Bitcoin.

In a note sent to clients, Thielen pointed out that Coinbase’s fundamentals, particularly the trading volumes, have not supported the significant price increase in its shares, which are fast approaching the overvaluation zone. This scenario often indicates a classic setup for a potential market correction.
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Thielen detailed that shares of Coinbase have climbed 84% in two months—an increase that doesn’t correlate with the 14% rise in Bitcoin over the same period, indicating a disconnection between price movements. According to 10x’s regression model, 75% of fluctuations in Coinbase’s stock can be attributed to Bitcoin’s price activities. This suggests that for every $10,000 increase in Bitcoin, COIN’s pricing evaluates by around $20.

Key Insights:

• Thielen outlined that although Coinbase hasn’t yet crossed the +30% overvaluation mark, it is approaching it quickly. He cautioned that despite being a significant player in the crypto market, the current prices suggest a high risk of poor performance ahead.
• In preparation for potential shifts in the market, traders might consider the strategy of buying Bitcoin while simultaneously shorting Coinbase or utilizing options for a more risk-hedged approach.