Investment research company Citron, founded by renowned Wall Street short-seller Andrew Left, has recommended short-selling Coinbase (COIN) stock following the exchange’s temporary outage on February 28.
In a statement on February 29, Citron stated, “The recent malfunction of the $COIN site makes the long Bitcoin/Short Coinbase trade one of the most compelling trades in the cryptocurrency market. This involves going long on bitcoin through an ETF and shorting the overvalued Coinbase exchange.”
Institutional investors often take long positions in one asset and short positions in another as a hedging strategy, speculating that the long asset will appreciate in value while the underlying short asset will decline in value in a divergence trade. On February 28, Coinbase, along with other cryptocurrency exchanges, experienced a temporary outage due to a flash crash in Bitcoin (BTC), which caused a 10% drop in the digital asset’s price before recovering.
During the Coinbase outage, users reported seeing zero account balances and encountered errors while buying and selling. The exchange issued a follow-up message on February 29, stating, “All customer account balance display issues have been resolved on Coinbase.com. We appreciate our customers’ patience today.”
Since the approval of spot Bitcoin exchange-traded funds by the U.S. Securities and Exchange Commission in January, Coinbase has become the fourth-largest publicly traded asset exchange in the world, with a market capitalization exceeding $50 billion. In addition to the resurgence of Bitcoin, which reached the $60,000 milestone, the exchange has benefited from its role as a custodian for spot Bitcoin ETF managers, facilitating the exchange of BTC transfers to ETF shares based on user demand.
Despite Citron’s bearish outlook, the short-seller is not always accurate in its market predictions. In late 2022, shortly after the collapse of the cryptocurrency exchange FTX, Citron recommended shorting Ether (ETH) in a now-deleted tweet.
“At the time, the short-seller stated, ‘We continue to be short ETHER as we believe this $130 billion token has as many common sense flaws as the entire SBF story.’ Since issuing the sell recommendation, Ether has gained 182% and is now trading at $3,434.
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