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Crash Protection For Coinbase: How To Hedge Now That Options Are Available For The Crypto Platform

Options started trading on Coinbase (NASDAQ:COIN) on Tuesday, so longs can now hedge their shares in the crypto platform. We’ve posted a couple of hedges for the company below, in the event Anatoly Karlin’s prediction of a crypto crash this year comes to pass.

Before we get to those, let’s clear up a bit of misconception about the company’s IPO last week. 

No, Insiders Didn’t Dump Most Of Their Shares

One misconception about the Coinbase IPO last week is that insiders dumped most of their shares. That was exemplified by tweets such as the one below, by Peter Schiff. 

First a bit of context regarding Schiff: he runs a gold company, and lamented last month that his son had gone all-in on bitcoin. 

So, that may have colored his thoughts on Coinbase to some extent. As to Schiff’s claim that Coinbase CEO Brian Armstrong dumped 71% of his shares in the company: no. The percentages Schiff referred to are of the shares set aside for the direct listing. In Armstrong’s case, that amounted to about $292 million worth of shares. Armstrong owns 19% of Coinbase; his total stake was worth about $8.3 billion as of Tuesday’s close. With that in mind, let’s look at how new Coinbase shareholders can stay long while limiting their downside risk in case the crypto winter starts this year. 

Downside Protection For Coinbase

For both of these hedges, we used the January, 2022 expirations to cover all of 2021 (there’s also a January, 2023 expiration for Coinbase options now). In both cases, we scanned for hedges against a greater-than-23% decline, because that was the smallest decline you could hedge against while using optimal puts.