Coinbase Stock Surges 84% Outpacing Bitcoin's 14% Gain

Coinbase's stock price has surged 84% in the past two months, significantly outpacing the 14% increase in bitcoin's price over the same period. This discrepancy has led research firm 10x to recommend a short position in Coinbase (COIN) and a long position in bitcoin (BTC).

According to 10x Research, headed by Markus Thielen, Coinbase's fundamentals, particularly its trading volumes, have not kept pace with the rally in its share prices. The firm's linear regression model indicates that 75% of Coinbase's stock price action is explained by bitcoin's price and trading volumes, with the remaining 25% influenced by other factors such as Circle's IPO or U.S. crypto and macro developments.

Thielen noted that Coinbase's stock price tends to rise by $20 for every $10,000 move in BTC and by $24 for every $100 billion increase in trading volume. However, the recent price action suggests that the rally is overextended relative to bitcoin's price and trading volumes. Coinbase's shares have surged 84% over the past two months, while bitcoin has risen by just 14%.

Thielen explained that while Coinbase hasn't quite breached the +30% overvaluation threshold, it is approaching fast. The current premium suggests the risk of underperformance ahead. Traders looking to capitalize on this dislocation might consider going long Bitcoin while shorting Coinbase, or using options by selling a COIN call and buying a BTC call to express the same view with defined risk.

Other factors such as Circle’s IPO, the "GENIUS" stablecoin bill, and the buying frenzy from Korean investors seem to have been priced in. As this momentum cools, evident in the recent reversals of Circle, KakaoPay, and Metaplanet, there is growing risk that Coinbase shares could also be nearing a local top.