Coinbase short sellers raked in $480m in August — but bears are ‘deep in the red’ this year

Bearish investors in Coinbase stock won a respite in August amid the stock's more than 100% gains this year.
A 15% slump in Coinbase’s stock last month led shorts to post gains of almost $480 million.

A slump in Coinbase’s stock last month led to gains of almost $480 million for short sellers, a respite for bearish investors in the exchange as the stock has more than doubled this year.

“Coinbase short sellers are still deep in the red,” this year, Ihor Dusaniwsky, managing director at S3 Partners, told DL News. Shorts are down almost $2 billion in year-to-date mark-to-market losses, he said.

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This leaves bearish investors down 84% this year based on the average amount they’ve bet against the stock — around $2.3 billion.

Coinbase short squeeze

Coinbase fell about 15% in August. Short sellers faced paper losses of $1.3 billion in July, as Coinbase shares surged over 34% in a week. The year-to-date losses at that time reached almost $2.9 billion.

“With Coinbase’s stock price more than doubling this year we have seen a true short squeeze,” Dusaniwsky told DL News.

A short squeeze happens when short sellers are forced to close their positions by buying back the underlying stock.

Short sellers have reduced their positions over the past six weeks. Short interest — the number of shares of a stock that have been sold short by investors — accounted for about 15% of the outstanding stock today, according to S3 Partners. That’s down from 20% in mid-July.

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NOW READ: Short seller Jim Chanos says Coinbase ‘will still lose money’ even as crypto prices soar

The amount being bet against Coinbase, often referred to as short interest, is still high at $2 billion.

Today’s drop in stock price has eased the pressure on short sellers, reducing the immediate need to buy shares to cover their bets.

Coinbase bears count Kynikos Associates’ Jim Chanos among their ranks.

Chanos, the man who sounded the alarm about fraud at Enron, told DL News he has been short Coinbase since the first quarter of 2022, when the stock was as high as $250. The shares are currently trading at about $78.