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Coinbase short sellers set to rake in $307m on stock crash

  • Shorts made $307 million in intra-day mark-to-market profits as Coinbase fell after the SEC sued the exchange.
  • Short-selling legend Jim Chanos has been short Coinbase since 2022.

Bearish traders are set to make some $307 million in returns after Coinbase shares plunged on the Securities and Exchange Commission’s lawsuit against the crypto exchange.

The stock was down some 13% in intra-day trading in New York, falling to about $50.

NOW READ: SEC charges Coinbase with running an illegal exchange in fresh blow for crypto

Short interest – the number of shares of a stock that have been sold short by investors — makes up about 20% of Coinbase’s total stock, according to data research firm S3 Partners.

Coinbase shorts were up $307 million in intra-day mark-to-market profits as its stock price fell, Ihor Dusaniwsky, managing director at S3 Partners, told DL News in an email.

The calculations are based on intra-day pricing, meaning trading hasn’t yet closed.

‘Fundamentals being ignored is the opportunity’

—  Short seller Jim Chanos

Dusaniwsky said he expects short selling in the stock to be reinvigorated by the SEC’s lawsuit, which alleges that the exchange illegally operated an exchange and permitted investors to trade in assets that weren’t registered as securities.

Short-selling legend targets Coinbase

Short-selling legend Jim Chanos told DL News in April that he has been short Coinbase since the first quarter of 2022.

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“What is the bull case for Coinbase now? Before today’s SEC action, street estimates were for Adjusted EPS losses for at least the next five years,” Chanos, who tweets under the pseudonym Diogenes, wrote on Twitter.

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Chanos told DL News that the exchange charged retail customers “unsustainably high fees,” while still losing money –– it posted a $2.6 billion loss last year.

Mizuho Bank today lowered its revenue estimates to $2.39 billion from $2.41 billion, reiterating its underperform rating and keeping its price target unchanged at $27. KBW analysts expect a long drawn-out process with plenty of uncertainty for shareholders.

Coinbase, in a tweet, said that “the SEC has taken a regulation by enforcement approach that is harming America.”

Coinbase shares plunged on Tuesday.

Short sellers make money by borrowing shares of a stock and selling them in the market, they then wait for the stock to fall. They then return the stock to the lender, pocketing the difference.

Coinbase has been a proxy of sorts for the overall crypto sector — a rare publicly traded stock for crypto bulls and bears to take bets on the direction of the industry.

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Bulls have been shoring up the stock — it’s up 53% this year. Dusaniwsky said the gains have been painful for short sellers. Mark-to-market losses for the bearish investors total some $748 million, he said. In May, monthly market-to-market losses were $316 million.

Still, Chanos said he is optimistic for his short position: “Fundamentals being ignored is the opportunity.”