Legendary Short Seller Issues Warning On Coinbase, MicroStrategy

June 1st, 2022

Coinbase logged huge loss in Q1

Short-selling veteran Jim Chanos warned that Coinbase and MicroStrategy are likely set for more weakness this year.

Speaking with the Crypto Critic’s Corner podcast, Chanos said the margins Coinbase earns from trading commissions are too high when compared to traditional brokerages.

He said the 1.5% trading commission margins earned by Coinbase are likely to fall to 0.5%, amid increasing competition in the space. Chanos had revealed a short position on the firm in March.

Chanos, who famously shorted the Enron collapse of 2001, called MicroStrategy a “high wire act,” and expects the stock to largely track Bitcoin prices this year.

Is Coinbase losing money?

The crypto exchange’s recent earnings report suggests that there may be merit in Chanos’ position. Coinbase logged a $430 million loss in the first quarter. Total transaction revenue- the company’s biggest source of income- dropped by over 30% from last year.

Coinbase warned its second quarter may be even worse. The exchange recently said it will slow down hiring for the rest of the year, likely as a cost-cutting measure.

Coinbase’s share price has performed poorly since listing in 2021. The stock traded around record lows through most of May and is now at $78.10- slightly above a lifetime low.

This is a company that is going to have to cut costs faster than revenues because they’re losing money at a reasonably prodigious rate right now.


MicroStrategy corelated to Bitcoin

Chanos warned that MicroStrategy is largely correlated to Bitcoin and that the core business “isn’t worth a whole lot.”

Bitcoin is now below (Michael Saylor’s) average cost… that’s going to be an interesting exercise to see how it plays out.

MicroStrategy is the largest publicly listed holder of Bitcoin, with about 129,219 tokens on its balance sheet. Given that the firm was buying Bitcoin through 2021, the value of its holdings has slumped drastically this year.

In its first-quarter earnings, the firm logged a cumulative impairment loss of over $1 billion on its holdings since their acquisition.

The firm had purchased 4,167 tokens in March at an average price of $45,714 per Bitcoin. As of June 1, it has lost 36% of that investment.

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