Short selling data can help active investors manage risk. Short sellers tend to be sophisticated, high-conviction traders. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to look at the short selling data on Coinbase Global Inc (COIN:US). Coinbase is a financial technology company that operates a crypto-asset exchange platform. Founded in 2012, it has around 100 million customers in over 100 countries. The company is listed on the Nasdaq Global Select Market and currently has a market capitalization of $12.84 billion.
Coinbase: Short Selling Data
Looking at the short interest data on Coinbase, we see several red flags.
The first is that 36.06 million shares are on loan. That represents 109.2% of the free float. This high level of short interest indicates that many institutions are bearish on the stock at present.
The second is that the number of shares on loan is rising. When we last covered Coinbase, on May 19, 22.0 million shares were on loan. And at the end of April, just 3.4 million shares were on loan. This tells us that the short sellers are aggressively ramping up their short bets here.
Additionally, utilization – a measure of demand from short sellers – remains at 100%. And the cost to borrow is high at 8.43%. This tells us that there’s a lot of interest on the short side at present.
It’s not hard to see why short sellers are targeting Coinbase right now.
For starters, crypto prices have crashed. The fall has been quite brutal. According to crypto tracking site CoinGecko, 72 of the top 100 tokens have declined 90% or more from their all-time highs. This is going to have a significant impact on the firm’s revenues and profitability. For 2022, analysts expect the group to post a net loss of $1.6 billion, compared to a profit of $3.6 billion last year. Earlier this month, Coinbase said it would cut nearly 20% of its workforce to ride out the volatility in the crypto market.
Secondly, analyst sentiment towards the stock is deteriorating. Recently, analysts at Goldman Sachs cut Coinbase to sell from neutral. Goldman sees revenue falling 61% year-over-year in 2022 and believes the company will need to make “substantial reductions" in its costs in order to stem the resulting cash burn as retail trading activity dries up. The broker also flagged concerns about pricing and increasing competition.
Meanwhile, David Trainer, CEO of research firm New Constructs, recently said that the stock could possibly go to zero. Trainer said he was concerned about Coinbase’s lack of competitive advantage and its lack of diversification relative to other large exchanges.
Given the high level of short interest here, we think caution is warranted towards Coinbase stock at the moment.