Citron, an investment research firm founded by well-known Wall Street short-seller Andrew Left, has recommended short-selling Coinbase (COIN) stock after the exchange experienced a temporary outage on February 28.
In a statement on February 29, Citron wrote, “The recent malfunction of the $COIN site presents one of the most compelling trading opportunities in the crypto market. This involves going long on Bitcoin through an ETF and shorting the overvalued Coinbase exchange.”
Institutional investors often take long positions on one asset while simultaneously shorting another as a hedging strategy. The idea is to bet that the long asset will increase in value while the short asset will decline in value. On February 28, Coinbase, along with other crypto exchanges, experienced a temporary outage due to a flash crash in Bitcoin (BTC), which led to a 10% drop in the digital asset’s price before recovering.
During the Coinbase outage, users reported issues such as zero account balances and errors in buying and selling. The exchange addressed these problems in a follow-up message on February 29, stating, “All customer account balance display issues have been resolved on Coinbase.com. We appreciate the patience of our customers.”
Since the US Securities and Exchange Commission approved spot Bitcoin exchange-traded funds in January, Coinbase has emerged as the world’s fourth-largest publicly-traded asset exchange, with a market capitalization exceeding $50 billion. In addition to the resurgence of Bitcoin, which recently reached the $60,000 milestone, Coinbase has benefited from its role as a custodian for spot Bitcoin ETF managers. This involves facilitating the exchange of Bitcoin transfers to ETF shares based on user demand.
Despite Citron’s bearish stance on Coinbase, the firm’s market predictions have not always been accurate. In late 2022, shortly after the collapse of cryptocurrency exchange FTX, Citron recommended shorting Ether (ETH) in a now-deleted tweet.
“At the time, we maintained our short position on ETHER as we believed this $130 billion token had as many flaws as the entire SBF story,” Citron stated. Since the sell recommendation, Ether has delivered a return of 182% and is currently trading at $3,434.
Related: Bitcoin miner Hut 8 shares plummet by 23% following accusations from short-sellers.