Shares in Nasdaq-listed cryptocurrency exchange Coinbase (COIN) are quickly approaching an overvaluation threshold, as noted by 10x Research, led by Markus Thielen. Thielen is suggesting a strategy that involves taking a short position in COIN while simultaneously taking a long position in bitcoin (BTC).

In a message to clients, Thielen pointed out that Coinbase’s fundamentals, specifically trading volumes, have not kept up with the surge in share prices, which are rapidly approaching the overvaluation threshold, signaling a potential “tactical reversal.”

“While Coinbase has not yet crossed the +30% overvaluation mark, it is rapidly approaching it. Despite being a top-tier listed crypto investment, its current premium indicates potential underperformance in the future,” Thielen explained. “Traders interested in taking advantage of this discrepancy may want to consider buying Bitcoin while shorting Coinbase, or utilizing options by selling a COIN call and purchasing a BTC call to express the same viewpoint with defined risk.”

Fundamental analysis conducted by 10x’s linear regression model shows that 75% of Coinbase’s stock price movement is influenced by changes in bitcoin’s price and trading volumes. This means that only 25% of COIN’s price shifts are due to other factors, such as the impact of Circle’s IPO or developments in the U.S. crypto and macro landscape.

Based on these calculations, COIN’s price typically increases by $20 for every $10,000 movement in BTC and by $24 for every $100 billion uptick in trading volume.

Recent market trends suggest that the rally in COIN’s price has outpaced the increases in bitcoin’s price and trading volumes. While Coinbase’s shares have surged by 84% in the last two months, bitcoin has only risen by 14%.

“This premium is not only stretched in relation to bitcoin’s current price but also appears to be disconnected from the actual crypto trading volumes, which stand at around $108 billion,” Thielen noted. “This divergence implies that Coinbase’s valuation is inflated and susceptible to correction.”

The report also indicates that other factors, such as Circle’s IPO, the “GENIUS” stablecoin bill on June 17, and the heightened buying activity from Korean investors, have likely been factored into the current prices.

“As the momentum slows down, as evidenced by recent reversals in Circle, KakaoPay, and Metaplanet, there is a mounting risk that Coinbase shares may also be approaching a local peak,” Thielen warned.