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Coinbase (COIN) Nears Overvaluation, Sparking Short COIN/Long BTC Trade Recommendation; MicroStrategy (MSTR) May Be Front-Running S&P 500 Inclusion | Flash News Detail | Blockchain.News
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7/5/2025 9:30:00 PM

Coinbase (COIN) Nears Overvaluation, Sparking Short COIN/Long BTC Trade Recommendation; MicroStrategy (MSTR) May Be Front-Running S&P 500 Inclusion

Coinbase (COIN) Nears Overvaluation, Sparking Short COIN/Long BTC Trade Recommendation; MicroStrategy (MSTR) May Be Front-Running S&P 500 Inclusion

According to @QCompounding, analysis from 10x Research, led by Markus Thielen, indicates that Coinbase (COIN) shares are approaching an overvaluation threshold, prompting a recommended pair trade of shorting COIN while going long on Bitcoin (BTC). The research highlights a fundamental disconnect, as COIN's 84% surge in the last two months has significantly outpaced both Bitcoin's 14% rise and underlying crypto trading volumes, which are around $108 billion. The firm's regression model suggests COIN is vulnerable to mean reversion. Concurrently, the report notes that MicroStrategy's (MSTR) perpetual preferred shares are rallying significantly, which may signal that investors are front-running the company's potential inclusion in the S&P 500 index. Analyst Jeff Walton calculates that Bitcoin's record monthly close boosts MSTR's earnings per share to a level that meets the final criteria for S&P 500 eligibility, with an official announcement expected in September.

Source

Analysis

A compelling trading opportunity has emerged for investors navigating the intersection of traditional equities and the digital asset market. According to a recent analysis by 10x Research, led by the astute Markus Thielen, a pair trade involving a short position on Coinbase (COIN) stock and a long position on Bitcoin (BTC) is poised for success. The core of this strategy lies in the growing disparity between Coinbase's soaring share price and its underlying business fundamentals, primarily its trading volumes. This divergence suggests that COIN is rapidly approaching an overvaluation threshold, creating a prime scenario for a tactical reversal and presenting a sophisticated play for discerning traders.

Coinbase's Stretched Valuation: A Fundamental Disconnect

The data supporting this thesis is stark. Over the past two months, Coinbase shares have skyrocketed by an impressive 84%, a rally that significantly outpaces Bitcoin's more modest 14% increase during the same period. Thielen's note to clients highlights this imbalance, stating, "While Coinbase hasn’t quite breached the +30% overvaluation threshold, it’s approaching fast, and despite being one of the few high-quality, listed crypto plays, its current premium suggests the risk of underperformance ahead." This analysis isn't based on sentiment alone. A quantitative linear regression model developed by 10x Research indicates that approximately 75% of COIN's price movement is directly explained by Bitcoin's price and aggregate crypto trading volumes. The model suggests that for every $10,000 increase in BTC's price, COIN stock tends to rise by $20, and for every $100 billion increase in trading volume, it rises by $24. The recent price action has deviated sharply from this established correlation.

This deviation signals that COIN's valuation is becoming increasingly untethered from its core revenue drivers. As Thielen points out, the stock's premium appears "disconnected from underlying crypto trading volumes, which are hovering around $108 billion." This creates a vulnerability to mean reversion, where the stock price could correct downwards to realign with its fundamental drivers. 10x Research also posits that several near-term catalysts, which may have fueled the recent buying pressure, are now likely priced in. These include the potential Circle IPO on June 3, discussions around the “GENIUS” stablecoin bill on June 17, and a notable buying frenzy from Korean retail investors. The cooling of momentum in related assets further supports the idea that Coinbase shares could be approaching a local top, making the short side of the pair trade particularly attractive.

MicroStrategy's S&P 500 Play and Yield Appeal

While one crypto-proxy stock appears overextended, another is generating significant bullish buzz. MicroStrategy (MSTR), the well-known corporate Bitcoin accumulator, is seeing strong interest in its shares and perpetual preferred stocks, potentially in anticipation of its inclusion in the prestigious S&P 500 index. This speculation was fueled after Bitcoin's record-high monthly close in June above $107,750. According to MSTR analyst Jeff Walton, this price level translates into a massive positive earnings impact of about $11 billion for the company, boosting its earnings per share to approximately $39.50. This is a critical development, as it would likely satisfy the final requirement for S&P 500 eligibility: posting a net positive income over the most recent four quarters. Inclusion in the benchmark index often acts as a powerful catalyst, as it compels index-tracking funds to purchase the stock, driving up demand.

However, the S&P 500 narrative may not be the only factor driving investor interest. MicroStrategy's perpetual preferred shares—STRK, STRF, and STRD—offer compelling yields that stand out in the current macroeconomic environment. For instance, STRK's recent advance to $121 gives it an effective yield of 6.6%, while STRF and STRD offer even higher yields of 8.8% and 11.1%, respectively. These returns are significantly above the Federal Reserve's target rate, making them attractive to income-seeking investors. The performance has been remarkable; since its launch, STRK has delivered a 42% return, far outperforming both Bitcoin's 11% gain and the S&P 500's 2% rise over the same period. This dual appeal—a major index inclusion catalyst combined with high yields—makes MSTR and its related instruments a key focus for traders looking for upside exposure in the crypto-equity space, contrasting sharply with the bearish outlook on COIN.

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@QCompounding

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