CoinSqueeze

CoinSqueeze Asset management behemoth BlackRock announced a partnership with cryptocurrency exchange Coinbase Global today to bring a variety of crypto services to institutional investors. Those will include trading, prime brokerage, and custody solutions, initially for Bitcoin and eventually for other coins. That's not why Coinbase stock is up almost 50% this week, however. Instead, it appears that a short squeeze is in play. At one point today, shares were up 90% on the week. Barron's Jack Denton explains: Short positions are bets that a stock will fall and involve investors borrowing shares and selling them with the intention of buying the stock back at a lower price. But this strategy can backfire dramatically if the stock moves up, not down. Traders with short positions may have to “cover their shorts,” which involves buying back the stock at an unfavorably high price, taking a loss on their bets and adding buying pressure into an already upward-trending market. En masse, this phenomenon can create what is known as a “short squeeze,” which is when a significant volume of short-covering drives the share price relentlessly higher. Short squeezes played an influential role in the “meme stock” frenzy of early 2021, when stocks like GameStop and AMC made wild intraday moves and notched triple-digit gains in days. Almost a quarter of Coinbase’s shares had recently been sold short, according to data from Mizuho—significantly more than the average stock. Even after this week's rally, Coinbase is still down more than 60% year to date. A move in the stock of this week's magnitude certainly isn't justified by Coinbase's business fundamentals. The key figure to watch is daily trading volume on its exchange, which generates fees from clients. As cryptocurrency prices have plunged this year, Coinbase's trading volume has declined significantly. It has held near $1.8 billion a day on average lately, Jack writes. Read the rest of his Coinbase reporting here.