I teach "line of sight" to be toward the back of the wrists, but my girls can still push their handstands tall and hold their washcloths between their shoulders and head while keeping the proper line of sight for a handstand. Good point though!
From what I see, the coach is working on the head alignment, not the body alignment... which is a non-sense for a handstand, as studies have shown that the the sight should be directed towards the thumbs on the floor. This gymnast is obviously very experienced, but I won't teach handstands with tucked head like that. At least, this exercise can help to keep the shoulders pushed against the ears, which is essential in gymnastics for many elements, but I really don't like the head's position here.