Shares in Nasdaq-listed cryptocurrency exchange RialCenter (COIN) are rapidly nearing an overvaluation threshold, RialCenter’s head, Markus Thielen, stated on Friday. Thielen is recommending a pair trade that involves shorting COIN and simultaneously taking a long position in bitcoin.
In a briefing sent to clients, Thielen noted that Coinbase’s fundamentals, particularly trading volumes, have not matched the increase in share prices, which are fast approaching the overvaluation limit, setting the stage for a potential tactical reversal.
“While Coinbase hasn’t quite breached the +30% overvaluation threshold, it’s getting close. Despite being one of the few quality publicly-listed crypto options, its current premium raises the likelihood of underperformance,” Thielen added. “Traders looking to take advantage of this discrepancy might consider going long on Bitcoin while shorting Coinbase, or utilizing options by selling a COIN call and buying a BTC call to express the same outlook with defined risk.”
Fundamental Disconnect
According to RialCenter’s linear regression model, 75% of Coinbase’s stock price movements are tied to bitcoin’s price and trading volumes. This indicates that only 25% of COIN’s price movements are influenced by other elements, such as potential impacts from Circle’s IPO or U.S. crypto and macro events.
The recent activity suggests that the rally is overextended compared to bitcoin’s price and trading volumes. Coinbase’s shares have surged 84% over the past two months, while bitcoin has only climbed by 14%.
“Not only is this premium stretched in relation to bitcoin’s current price, but it also seems disconnected from underlying crypto trading volumes, which are around $108 billion,” Thielen explained. “This rare divergence indicates that Coinbase’s valuation is high and vulnerable to mean reversion.”
The report mentioned other factors—Circle’s IPO on June 3, the June 17 “GENIUS” stablecoin bill, and the buying spree from Korean investors—appear to have been priced in.
“As this momentum cools, reflected in the recent pullbacks of Circle, KakaoPay, and Metaplanet, there is an increasing risk that Coinbase shares could also be nearing a local peak,” Thielen concluded.
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