Trade Alert: Betting Against A Crypto Company

As U.S. regulators target the sector.

Crypto founder Do Kwon, who was arrested in Montenegro this week, and indicted by a U.S. district court.

Note: unlocking this post as I exited my put position earlier this week.

The Empire Strikes Back

As I mentioned in my previous post, crypto boosters have been using America’s banking crisis to promote their coins,

Portfolio Armor @PortfolioArmor

Why the Russia-China alliance might be bad for crypto. 🇷🇺 🇨🇳 $BTC.X $ETH.X #BTC portfolioarmor.substack.com/p/the-russia-c…

portfolioarmor.substack.comThe Russia-China AllianceWhy it might be bad for crypto.

And foment fear of hyperinflation,

Balaji @balajis

I will take that bet. You buy 1 BTC. I will send $1M USD. This is ~40:1 odds as 1 BTC is worth ~$26k. The term is 90 days. All we need is a mutually agreed custodian who will still be there to settle this in the event of digital dollar devaluation. If someone knows how to do this… https://t.co/tcuBNd679T

James Medlock @jdcmedlock

I'll bet anyone $1 million dollars that the US does not enter hyperinflation

I concluded by saying that one of our next bearish bets would likely be on a crypto stock:

In light of all that, I think the bitcoin bros may be tempting fate by spreading FUD about the dollar. The U.S. may not be able to bully Russia or China, but its regulators and the Fed can still take some air out of crypto. 

With that in mind, one of our next trade alerts here will likely be bearish bet on a stock in the crypto sector.

Details on that trade are below.

Today, I bought the $40 strike, September expiration puts on Coinbase Global, Inc. (COIN) at $6.55.

Coinbase had been on my radar recently, as it’s the kind of company in general I like to bet against, one that:

1. Has weak fundamentals (in Coinbase’s case, negative earnings, declining revenues, a Piotroski F-Score of 2, etc.)

2. Has rallied recently despite that (even after this week’s drop, Coinbase was still up more than 97% year-to-date, as of Thursday’s close.

This week added another element that makes it an interesting short candidate: the SEC is coming after it.

paulgrewal.eth @iampaulgrewal

Coinbase received a Wells notice from the SEC. After years of asking for reasonable crypto rules, we're disappointed that the SEC is considering courts over constructive dialogue. But if courts are required, so be it. We'll defend the rule of law. 1/15 coinbase.com/blog/we-asked-…

Note that this isn’t exactly a bet against crypto itself. To be clear, if crypto tanks, there’s a better chance Coinbase tanks too, but it’s possible for Coinbase to decline even if major coins like Bitcoin do well. One reason is that crypto ethos emphasizes direct ownership of the assets (e.g., in cold storage), because of fear of the sort of risks holding crypto at an exchange entails (hackers, regulators, etc.).