10x Research Recommends Shorting Coinbase (COIN) and Longing Bitcoin (BTC) as Stock Nears Overvaluation

According to 10x Research, a compelling pair trade opportunity has emerged, recommending a short position in Coinbase (COIN) and a long position in Bitcoin (BTC). The research firm, headed by Markus Thielen, highlights a significant disconnect between Coinbase's stock performance and its underlying fundamentals. Specifically, COIN shares have surged 84% over the past two months, while BTC has only risen 14%, and crypto trading volumes have not kept pace, hovering around $108 billion. 10x Research's linear regression model, which explains 75% of COIN's stock price through BTC's price and trading volumes, suggests the stock is fast approaching a +30% overvaluation threshold. This deviation indicates Coinbase's valuation is extended and vulnerable to mean reversion, presenting a tactical opportunity for traders to capitalize on the dislocation by shorting COIN while going long on BTC.
SourceAnalysis
A compelling trading strategy is emerging for investors navigating the complex relationship between cryptocurrency assets and equity markets. According to a recent analysis by 10x Research, headed by market strategist Markus Thielen, a significant valuation disconnect has appeared between Coinbase (COIN) stock and Bitcoin (BTC). The firm is now advocating for a sophisticated pair trade: shorting COIN shares while simultaneously taking a long position in Bitcoin. This recommendation stems from a detailed quantitative analysis indicating that Coinbase's stock price has surged dramatically, reaching a point where it is fast approaching an overvaluation threshold, especially when measured against its core business fundamentals like crypto trading volumes. The core of this trade thesis is that a correction, or mean reversion, is becoming increasingly likely for COIN stock, while Bitcoin's own fundamentals remain robust, creating a powerful arbitrage opportunity for savvy traders.
The Fundamental Disconnect: COIN vs. BTC
The disparity in performance between Coinbase stock and Bitcoin has become stark. Over the last two months, COIN shares have rocketed an astonishing 84%, a rally that significantly outpaces Bitcoin's more modest 14% gain during the same period. According to 10x Research, this divergence is not supported by the underlying metrics that typically drive Coinbase's valuation. Their linear regression model shows that approximately 75% of COIN's price movement can be explained by just two factors: the price of Bitcoin and overall crypto trading volumes. The remaining 25% is influenced by other narratives, such as the potential impact of Circle's upcoming IPO or broader U.S. crypto regulations. This model suggests a quantifiable relationship: COIN's price tends to increase by $20 for every $10,000 rise in BTC and by $24 for every $100 billion increase in trading volume.
Overextended Rally and Mean Reversion Risk
When applying this model to current market conditions, the overextension becomes clear. Thielen notes that the premium on COIN stock appears disconnected not only from Bitcoin's price but also from the actual activity on exchanges. Crypto trading volumes are currently hovering around $108 billion, a figure that does not justify the magnitude of COIN's recent share price appreciation. "This rare deviation suggests Coinbase’s valuation is extended and vulnerable to mean reversion," Thielen stated in a note to clients. While the stock has not yet breached the critical +30% overvaluation mark defined by their model, it is approaching it rapidly. The report also suggests that several bullish catalysts, including the hype around Circle's IPO, a proposed stablecoin bill, and a buying frenzy from certain international investors, appear to be fully priced in. As this momentum shows signs of cooling, the risk of a local top for Coinbase shares grows, strengthening the case for the short COIN, long BTC pair trade.
Broader Challenges in Crypto Valuation
This specific trading opportunity in Coinbase highlights a much broader, systemic challenge within the digital asset space: the difficulty of accurately valuing blockchain-related entities. The debate over how to price networks and the companies built upon them is reminiscent of the early dot-com era, where metrics like "eyeballs" were used in place of traditional earnings. Today, we face a similar conundrum. While models exist, they often fail to capture the unique properties of decentralized infrastructure. Applying a standard discounted cash flow (DCF) model to a protocol that is designed for permissionless use rather than profit extraction can be misleading. Similarly, valuing a company like Coinbase requires looking beyond its income statement to the health and activity of the entire crypto ecosystem it serves.
To move forward, analysts are exploring more crypto-native valuation frameworks. Some proposals focus on a network's Monetary Store of Value (MSOV) by measuring assets staked or locked in DeFi. Others attempt to calculate an "on-chain GDP" to quantify economic output. A more dynamic approach, as proposed by some thought leaders, is to value the velocity and flow of capital through a blockchain's economy. This involves analyzing stablecoin turnover, DeFi transaction loops, and real-world asset tokenization volumes. Such a model focuses on movement and utility as the primary indicators of a network's health and vitality. For traders, understanding this valuation puzzle is crucial. The dislocation seen in COIN's price is a direct result of the market struggling to reconcile old-world financial models with new-world technology. Recognizing these moments of irrationality, as 10x Research has, is key to identifying and executing profitable trades in this evolving market landscape.
Compounding Quality
@QCompounding🏰 Quality Stocks 🧑💼 Former Professional Investor ➡️ Teaching people about investing on our website.