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COIN short-sellers up $576.5m in November amid FTX-sparked market rout

By Daniela Ešnerová

13:32, 8 December 2022

Coinbase (COIN) logo
Short-sellers profited from betting against the COIN amid the crypto market mayhem. – Photo: ShutterStock

Traders bagged over half a billion dollars in paper profits betting against the world’s biggest cryptocurrency exchange Coinbase (COIN) in November - the month that saw COIN’s rival, FTX, fail, tarnishing general confidence in the sector. 
 
"COIN short sellers were up +$576.5m in November mark-to-market profits and up +37.6% on an average short interest of $1.53bn," Ihor Dusaniwsky, managing director at the financial data and analytics firm S3 Partner, tells Capital.com.

The Nasdaq-listed firm initially benefited from the FTX's spectacular collapse last month as it picked up clients fleeing the embattled rival.

But the FTX downfall also sparked a wave of distrust in centralised crypto exchanges and depressed the crypto markets - which spelled bad news for a business whose revenues come from trading fees.

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Coinbase Global (COIN) share price

From hero to?

As FTX was struggling to satisfy its clients withdrawal requests at the beginning of November, Coinbase’s CEO, Brian Armstrong, took the opportunity to make a case for regulated firms. As the only major publicly traded crypto exchange, Coinbase has to live up to higher transparency levels than its private peers. 

As nervous investors were fleeing FTX, COIN saw inflows. “I'm just as bullish on crypto as ever,” Coinbase's boss proclaimed, as crypto markets were crumbling.

But while he was making bullish statements to the world, Armstrong was silently selling off over $1.6m worth of his COIN shares holding - reports of which didn’t exactly reassure the markets about the company's prospects. Moreover, the cryptocurrency market downturn distressed the company, whose revenues come from trading volumes, leading some analysts to downgrade their outlook for the stock.

That’s why the Bank of America slashed its rating for COIN: “We do not think COIN is another FTX, but the fallout from FTX creates new headwinds for COIN that warrant additional caution,” BoA research analyst Jason Kupferberg reasoned the downgrading of COIN’s rating from ‘buy’ to ‘neutral’. 

US30

39,802.60 Price
-0.460% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 2.2

DE40

18,742.40 Price
+0.070% 1D Chg, %
Long position overnight fee -0.0221%
Short position overnight fee -0.0001%
Overnight fee time 21:00 (UTC)
Spread 8.0

HK50

19,560.80 Price
-0.830% 1D Chg, %
Long position overnight fee -0.0225%
Short position overnight fee 0.0005%
Overnight fee time 21:00 (UTC)
Spread 30.0

US500

5,309.30 Price
+0.090% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.8

The fallout from the FTX demise badly impacted the cryptocurrency conglomerate, Genesis Global, whose lender arm froze withdrawals a week after FTX went bust. Then speculations that Genesis Custody, who is COIN's custodian, was reportedly struggling to raise $1bn to shore up its liquidity further hitting COIN traders sentiment.

On 25 November, COIN stock price sunk to its all-time low - a staggering 90% below its IPO from May 2021.

On 7 December, 2022 Armstrong confirmed his company will feel the pain from the FTX rout and he warned that Coinbase could see its revenues slashed by 50% in 2022. 

Bitcoin (BTC) to US Dollar

More COIN short-selling to come? 

COIN has been a profitable short trade in 2022 so far, and Dusaniwsky foresees that traders will keep betting against the stock:

“We’ve seen continued short selling in COIN in November, and we expect short selling to continue as volatility in the crypto sector continues to be high,” S3 Partners' Dusaniwsky tells Capital.com.

 “With COIN short sellers up over +37% in mark-to-market profits in November, even a slight rebound rally won’t chase out too many shorts as they have a cushion of $576 million in November profits and $1.78bn of year-to-date profits to cushion of the blow of short-term price strength.”

Markets in this article

COIN
Coinbase Global Inc (Extended Hours)
225.23 USD
16.4 +7.920%
BTC/USD
Bitcoin / USD
69687.95 USD
3344.1 +5.050%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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