Coinbase: Are The Bears Dead Yet?

Summary The Coinbase short squeeze has been explosive. Unfortunately, for bears, it likely didn't start until COIN was in the $50s rather than when it was in the $30s. This massive rally over the last few sessions could get worse for shorts in the coming days/weeks. Still, caution is warranted for bulls after a 46% rally in just two sessions. About a month ago I covered Coinbase ( COIN ) stock for the first time. The core thesis of that note was COIN's short interest, an imminent death that had been greatly exaggerated given the cash on the balance sheet, and the possibility of regulatory tailwinds. The latter coming to fruition far down the line if government actors try to push consumers toward regulated exchanges rather than things like Uniswap ( UNI-USD ) or other DEX platforms that DeFi users would likely advocate more for. It has been only a few short weeks since that article was published and we already have a COIN price that has rallied 150%. Is the worst over or should bears get ready for more pain? Revisiting the Squeeze Thesis In the spirit of Groundhog Day, let's look at all the same charts again. Just one month later, we have a share price that has nearly tripled and a short position that is actually larger than it was when I wrote the January article. Data by YCharts At the time, the short interest was 17% of the shares outstanding. As of January 13th, the figure is now over 19% as the short position was just under 44 million shares following the last update. We won't know for another week what the short position was at the end of January. But we do know that the bears had not even started covering yet as of mid-January when the share price closed a few pennies below $50. Additionally, the shares available to sell are still well below November levels according to iBorrowDesk: COIN Shares Available (iBorrowDesk) Here we can see a small bump in shares available for selling but there hasn't been a sustained move higher in that figure. Judging from this, I don't think long term bulls who are underwater have thrown in the towel yet on this rip and I think that explains why we've been seeing explosive intraday moves in COIN shares like we saw Thursday, Wednesday, and on January 27th. Coinbase Bonds (Business Insider) Even the corporate bonds have moved higher in the last month having rallied from under $50 in late December to just under $59 today - though they are still trading at a sizeable 41% discount to the issue price. Flashing Overbought We have a COIN share price that just closed Thursday over $81 and a broad market that has been looking for any reason to justify buying equities. With FOMC in the rearview mirror, the Nasdaq has broken out of resistance that goes back all the way to Q4-21 and has held multiple back-tests of the 200 day moving average: Nasdaq Daily Chart (TradingView) From where I sit, the market had been waiting for Fed Chair Jerome Powell's FOMC commentary Wednesday and he didn't say anything that scared bulls enough to pump the brakes on FOMO buying stocks. It is important to note that the Nasdaq is now up almost 7% since Powell started talking on Wednesday. The market is extremely overbought on this rally. As is Coinbase having now rallied 45% in just two days: COIN Daily Chart (TradingView) Coinbase's 14 day RSI is over 77. This is the most overbought COIN shares have been since October 2021. Of course, things don't go up in a straight line and the stock probably needs to back-test some resistance levels before it tries for another high. I would imagine there are a lot of traders who have piled into this stock on the momentum shift and some of them may be looking to take some profit after such a strong move. But until the stock closes under the 200 day moving average decisively, I don't think the pain is over yet for the short side. Summary Risk markets are getting very extended short term and the tech stocks that have been hit really hard over the last year or so have been noticeably outperforming year to date. For COIN bulls specifically, it's important to remember that Coinbase is still a company that has some fundamental problems. Exchange Volumes (CoinGecko) Even on this big move up in crypto prices over the last several days, Coinbase exchange volume is somewhat flat and very much lagging competitors like Binance ( BNB-USD ). While I do still maintain that it would be bullish, my regulatory tailwind speculation likely won't play out for some time if it ever even does. Until then, Coinbase is probably a better trade than investment in my opinion. But the squeeze thesis doesn't seem stale to me yet. While I have already personally sold my COIN long, I do have open buy orders much lower than Thursday's close and would ride this one again should those orders fill prior to another leg up. As of mid-January the squeeze hadn't even started yet. I doubt it's over already. But after such a massive rally over the last two days, buying at $85 Thursday was FOMO. I view it as a hold until there is a reasonable dip.