Coinbase (NASDAQ: COIN) is a publicly owned cryptocurrency exchange that has been calling for the crypto industry and investors to unite in order to face the ‘regulatory takeover’ by the Securities and Exchanges Commission (SEC), and other authorities in the United States. Facing, themselves, a prosecution by the SEC.
Interestingly, quarterly public reports retrieved by Finbold, which were presented by the company to the SEC and investors, suggest that Coinbase has been shorting crypto assets through derivatives financial strategies. A short position is usually a position made against the market, favoring lower prices.
The shorts can be made in two different ways: (A) opening short positions using futures contracts, with executable orders that profit when the price goes lower than what is trading on spot; (B) borrowing cryptocurrencies using other assets as collateral, so they can sell these assets on the spot market, with the expectation to later buy the assets back in a lower price, to repay the loan and profit with the difference, receiving the collateral back.
Coinbase’s possible amounts allocated in short positions
The 2023 Q2 report shows that on December 31, 2022, Coinbase held a total of $300.15 million in possible short positions, distributed as follows:
- $136.23 million (as a hedge) in shorting positions with futures contracts
- $12.46 million (not as a hedge) in shorting positions with futures contracts
- $81 million (as a hedge) in “crypto assets borrowings with embedded derivatives”
- $70.46 million (not as a hedge) in “crypto assets borrowings with embedded derivatives”
On June 30, 2023, Coinbase held a total of $119.66 million in possible short positions, distributed as follows:
- $187,000 (not as a hedge) in shorting positions with futures contracts
- $119.48 million (as a hedge) in “crypto assets borrowings with embedded derivatives”
As per the deposited collaterals, the company had $13.10 million on December 31, 2022, and $23.08 million on June 30, 2023.
Coinbase crypto futures
“I 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.”
In response to the recent news that Coinbase would be listing crypto futures, warning that they could use this tool to “front run” investors, as besides being now a provider of futures contracts, they are also using this tool themselves in order to increase the company’s revenues.
Finally, data from past quarterly reports suggest that Coinbase has held even bigger short positions on both futures contracts and borrowed assets, for example, with over $660 million borrowed assets on December 31, 2021, right after Bitcoin (BTC) reached its all-time high of $69,000 in November.