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Why $4bn in losses for Coinbase short sellers is poised to get even worse

Why $4bn in losses for Coinbase short sellers is poised to get even worse
Coinbase bears took a beating in 2023 as CEO Brian Armstrong's crypto exchange went from strength to strength. Credit: Andrés Núñez/DL News.
  • Coinbase short sellers are down over $4 billion in 2023.
  • And yet bearish traders continue to bet the stock price will decline.
  • Short sellers’ persistence has left the stock open to a short squeeze, according to S3 Partners.

Coinbase bears took a beating in 2023.

As the exchange’s stock price soared nearly 400%, short sellers were left with losses of over $4.2 billion.

But the bearish investors aren’t giving up. The number of Coinbase shares’ that have been sold short— known as short interest — is around $4 billion, according to data analytics firm S3 Partners.

The number includes $1.3 billion since the end of November alone — as short sellers continue to bet the stock will crash, Ihor Dusaniwsky, managing director at S3 Partners, told DL News.

Short squeeze

There was no let up for shorts in December as Coinbase shares soared more than 40%, which led to paper losses of $1 billion since the beginning of the month.

“If Coinbase’s stock price continues to climb at its recent trajectory, we should expect a short squeeze in the stock,” Dusaniwsky told DL News.

A short squeeze occurs when a stock’s price increases rapidly due to too many short sellers in the market. The bearish traders are forced to buy the stock to cover their positions, sending prices higher.

Long-term investors in Coinbase will continue to look to the strength in Bitcoin and other cryptocurrencies, Dusaniwsky told DL News.

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Crypto has been buoyed by optimism surrounding a potential spot Bitcoin exchange-traded fund, and by more investors seeing crypto as what Dusaniwsky called a “safe store of wealth” during a period of interest rate reductions.

This, combined with short sellers buying to cover their positions, means shorts will “turbo-charge” demand in Coinbase, “when, and if, the short squeeze takes hold,” Dusaniwsky said.

One of the biggest recent short squeezes to grab headlines: GameStop short sellers were famously squeezed in January 2021, resulting in a $3 billion loss for one hedge fund, Melvin Capital.

Highs and lows

Coinbase’s stock was buoyed by factors unique to its business model as well as improving sentiment in the broader financial market in 2023

Bitcoin’s price rose over 150% as sentiment improved in crypto. Most notably the possibility of approval for a Bitcoin exchange-traded fund helped push prices higher from June, when Wall Street giants filed to get a regulatory nod.

Coinbase bears suffered paper losses of $1.3 billion in the first two weeks of July, as Bitcoin ETF euphoria took hold of crypto and the exchange was named in several applications.

Coinbase joined several firms’ surveillance sharing agreements and became the custodian of choice for the majority of applications.

Most notably Coinbase will serve as custodian for BlackRock, the world’s largest asset manager with over $9 trillion in assets under management, if the US Securities and Exchange Commission approves its application.

Macroeconomic conditions also improved, helping the stock move higher alongside the broader financial market.

Central banks globally eased their interest rate outlook, which also benefited cryptocurrencies.

A lower interest rate environment is considered positive for riskier assets like Bitcoin, while the ETF could open up the digital asset to billions of dollars of “rich boomer money,” in the US.


Short sellers had a brief respite in August. As shares in the crypto exchange slumped 15%, bears booked nearly half a billion dollars in profits.

The $480 million so-called mark-to-market gains in August did little to offset year-to-date declines. Shorts were down 84% between January and the end of August — or around $2.3 billion.

Regardless of where the stock goes in 2024, one notable bear might not be involved.

Jim Chanos, one of Coinbase’s biggest critics, announced plans to close his funds in 2023.

The legendary bear who shot to fame as an early sceptic of Enron in the early 2000s, said he plans to shutter hedge funds he manages because “interest in fundamental stock pickers has waned.”

In April, Chanos told DL News he went short on Coinbase in the first quarter of 2022 when shares traded for around $250.

Adam Morgan McCarthy is DL News’ London-based Markets Correspondent. Got a tip? Reach out at

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