Dispatch #20: The Degens Are Raiding the Market, But This Time, It’s Not Crypto

Jan 29, 2021 5 min read

Dispatch

In the 20th patch of your weekly Dispatch:

Stock Wars: The Retail Strikes Back
51% BTC attack – a central banker’s make-believe
Elon Musk is a Bitcoiner now
Nexonomics: The Sequel

The Big Idea

A Market Revolt

“I think what it proves is that this retail phenomenon is here to stay. In a world of zero interest rates and quantitative easing, I don’t know how you can run a traditional hedge fund strategy and make money any more,” venture capitalist Chamath Palihapitiya stated earlier this week.

When markets tanked around the COVID-19 crisis last March and April, no one would have predicted the source of market optimism that would ultimately drive stock prices back up.

It was not professional investors, who had an extraordinarily bleak view of things, but a legion of retail investors using Robinhood to execute trades and the r/WallStreetBets subreddit to discuss and share their moves. When markets rebounded faster than people expected, many professional money managers had to admit they were beaten to the punch by a bunch of fiery memers.

Fast-forward nine months. The traders at WallStreetBets are in the spotlight again, but this time, it’s a little different. The retail investors that frequent the subreddit and its companion Discord have been going after Wall Street short sellers with massive impact.

It caught mainstream media attention when a 900% price increase in GameStop caused premier hedge fund Melvin Capital to require $3B of emergency infusion to shore up its finances.

The insurgency has continued, with Blackberry and AMC being further targets of the r/WSB crowd. So frantic have things gotten that certain brokerages have shut down trading of certain stocks and the SEC has even said they’re monitoring the situation.

What’s clear is that this is more than a financial game for the WSB crowd. Instead, it is a reaction to being on the wrong side of years of Wall Street practices designed to benefit the casino in-crowd.

It may not be crypto, but you’re nuts if you can’t see the connection in motivations driving this fast-evolving situation.

The Latest In…

Regulators

As the Biden administration gets up and running, we’re starting to see the earliest indicators of how key economic groups view the situation right now. After the FOMC meeting this week, Fed Chairman Jay Powell said that the Fed would “welcome higher inflation.” Over at the Bank for International Settlements (the central bank of central banks), its chief economist claimed it was only a matter of time before Bitcoin was 51% attacked into oblivion. So, fun times. On the upside, Miami is now hosting the Bitcoin white paper on its website.

The Latest In…

DeFi

Bitcoin may be sideways/down but DeFi is seeing something of a comeback. The total value locked in DeFi (the most common metric for the size of the space) punched over $26B for the first time. That’s an increase of more than 2900% since this same time last year. No wonder there is serious excitement in the space.

The Latest In…

Bitcoin

This week has been, frankly, a lot about speculation around the future. ARK investment guru Cathie Wood argued that a Bitcoin ETF is unlikely to gain approval until the total BTC market cap hits $2T.
Former Goldman CEO Lloyd Blankfein thinks that governments would try to shut BTC down if it got too successful.
In a big move, Ray Dalio seems increasingly on the Bitcoin train.
And of course, every institution thinking about getting exposure to Bitcoin is watching to see what a newly confirmed Treasury Secretary Yellen will do vis-a-vis crypto.

The Latest In…

Elon Musk

Tesla’s CEO changed his Twitter bio to just one word – Bitcoin. The move cost over $420M in losses to Bitcoin traders with short positions. Just a random number? We don’t think so.

The Latest In…

Nexonomics

We ain’t sayin’ a word. But The Times They Are A-Changin’. You might want to keep an eye on Nexo’s Twitter feed in the coming days.

The Week’s Most Interesting Data Story

Bitcoin Likes the Air Up Above $30,000

Before 2021, Bitcoin hadn’t spent a single day above $30,000. Since then, however, it has been rocking and rolling. In fact, overall, 2.3 million BTC – 12.6% of the total supply – has been moved at prices above $30,000. What does it mean? Well, it’s more evidence for the thesis that the new bull market is being driven by big institutional investors adding to their positions.

Hot Topics

What the Community Is Discussing

Crypto has collectively decided to pause our regularly scheduled program to focus on the Wall Street Bets revolution. And so did politicians.

Still, we took a pause for a LOT of skepticism around the Fed’s latest statements.

There is a sense that a next phase of DeFi is beginning, although what it will bring, no one knows.

Our Take

@AntoniNexo This Week

Mainstream media got in on the action the moment Bitcoin no longer seemed poised to reconquer $40K or even $35K. Always here to remind you that market corrections are only the most natural thing, Antoni told Bloomberg that, fundamentally, nothing has changed: regardless of fluctuations, “the long-term prospects remain very bright he said, projecting that “as long as we are above $20,000, we are still in a bullish market.”
…and then Elon happened, BTC jumped over $38K, and Bloomberg came to Antoni again: Musk’s support for Bitcoin “creates a safe zone for some of the smaller companies and possibly everyone in the S&P 500 to allocate into Bitcoin,” he said. Crazy days.
Although the epic short squeeze surrounding GameStop has already wiped the alleged double-spend from folks’ memories, here’s a reminder that it was the talk of the town only last week. Antoni had a chat with the Financial Times about it, dispelling fears of a tech hiccup: “What was perceived as an ill-natured manipulation was in fact a perfectly normative blockchain event, wherein the network functioned in accordance with its protocol – a clear as day sign that Bitcoin is, simply put, doing just fine.”