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Coinbase Exposed! Accused of Aggressively Shorting Crypto

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By Jessy Sloan - - 5 Mins Read
Illustration of a crooked arrow piercing the palms of a person, representing the shorting of crypto
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Some individuals may have speculated that Coinbase is shorting the cryptocurrency market, but a majority of people would likely disregard such allegations.

 

The evidence presented in their Q2 report makes it seem like the claims are valid. Traders are concerned to think that an institution meant to support the values of the crypto industry shouldn't go against everything it stands for. This is what may be happening at Coinbase. However, it's important to note that not everyone comprehends the concept of shorting. A brief explanation can be helpful. 

 

Shorting a cryptocurrency is when an individual or even a large organization like Coinbase takes a position made against the market, favoring lower prices.

 

To put it simply, some individuals want the value of cryptocurrencies to decrease so they can earn a lot of money. They achieve this by shorting a cryptocurrency, which involves opening a short position in a futures contract. This contract automatically executes whenever the cryptocurrency's price falls below the current price.

 

In another method, someone can short a cryptocurrency by borrowing cryptocurrencies using other assets as collateral. They would expect these cryptocurrencies to go lower so they can sell on spot markets and make profits. Apparently, Coinbase is alleged to be engaging in either of the two methods to short the market.

Amount Shorted By Coinbase 

According to their Q2 report, Coinbase crypto holdings showed possible amounts of money the crypto exchange invested in shorting cryptocurrencies. From December 31, 2022, Coinbase held $300.15 million that might have been invested into shorting cryptocurrencies. 

 

It is speculated that the crypto exchange which has recently been under SEC scrutiny invested $136.23 million in short positions with futures contracts. Furthermore, $12.46 million (not as a hedge) went into the same position for Coinbase shorting. Then another $81 million, but as a hedge, came in as "crypto assets borrowings with embedded derivatives.

 

Finally, another $70.46 million went into a similar position as "crypto assets borrowings with embedded derivatives.

 

Moving forward, other suspected funds used for Coinbase shorting can be traced to June 30, 2023, when Coinbase held a total of $119.66 million. These funds went concisely into two positions for a suspected market shorting. About $187,000 (not as a hedge) went into futures contracts in their shorting positions.

 

Then the remaining $119.48 million, but as a hedge, went into their respective "crypto assets borrowings with embedded derivatives." The knowledge that a popular crypto exchange like Coinbase is shorting drives many reactions in the community. 

 

Reactions From the Crypto Community 

Many cryptocurrency community members are disgusted after learning that Coinbase has taken shorting positions with hundreds of millions of dollars. This move has come as a surprise to many crypto enthusiasts.

 

A user on Twitter (now X) named @RhoRider accused Coinbase of using big names and terms to conceal their behavior. @RhoRider also sounded a wake-up call to many community members who believe everything a crypto exchange says. 

"l wonder how many of the people cheering $COIN crypto futures know that deep in their earnings reports, $COIN reveals they’ve been shorting the market via crypto futures for years - have fun getting front run by their “Risk Solutions” desk," @RhoRider said on Twitter. 

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