To The Moon

KEY POINTS

• Jim Chanos, a famous short seller, said he believes Coinbase is "overearning" right now.

What happened

Shares of the large crypto exchange Coinbase fell nearly 5% today after a big investor took a short position in the company, which currently has a nearly $38.5 billion market cap.

So what

Veteran short seller Jim Chanos, who rose to prominence by shorting Enron before scandal engulfed the energy and commodities company and eventually took it out of business, now thinks Coinbase is overvalued.

Chanos of Kynikos Associates told CNBC Friday that he thinks Coinbase is a "bubble stock." He added that he thinks the company's earnings could fall in the future and that they're based in part on a story:

Image source: Getty Images.

There are plenty of companies that are in the new economy that have real growth, real cash flows, and real earnings, but there's a lot that are just being sold on stories, and we would argue that Coinbase is one that's being sold on a story.

Now what

Since going public in April of 2021, shares of Coinbase are down more than 48%. Shares rallied leading up to last November but have since come tumbling back down along with many other tech stocks. Analysts have broadly stayed bullish on the company, with the average median price target still close to $300, implying strong upside from the current stock price of around $176 per share.

As the price has come down, I've been more bullish on Coinbase, especially as it continues to further diversify revenue and as cryptocurrencies like Bitcoin get more ingrained into the financial system.

But with a prominent short seller like Chanos now turning his eye on the company, it's definitely a good idea to retest your hypothesis and see if you can figure out where he may be coming from in terms of his comments on earnings.