The 2021 GameStop saga, not too long ago featured in a Netflix film, could have surprising parallels with Bitcoin, significantly within the context of a potential provide crunch.
Echoes of the Reddit-fueled’ mom of all brief squeezes’ (MOASS) for GameStop, in Bitcoin’s context, might manifest as a vital provide squeeze, or ‘Bitcoin Mother Of All Supply Squeezes’ (Bitcoin MOASS.) I’ve referenced this in a number of articles this yr, however I wished to interrupt down precisely why I feel this might occur.
To grasp this higher, let’s revisit the GameStop phenomenon.
I wasn’t early sufficient to observe Roaring Kitty by means of his preliminary thesis on GME at round $3 per share. Nevertheless, I used to be lively inside the WallStreetBets subreddit, and by the point the inventory hit $13, it was arduous to disregard his each day updates. Across the $50 (pre-stock split) value, I cracked and ‘YOLOed’ in and took the journey as much as $500, decided to carry for the moon or bust. Finally, I bust, however I loved being a a part of one thing.
GameStop brief squeeze thesis fundamentals.
For these unfamiliar, GameStop shares have been closely shorted by a number of hedge funds who noticed simple prey in a retail retailer headed for chapter with the added ache of the pandemic. Seemingly, the objective was to brief the inventory to zero. This technique, typically employed towards faltering corporations (like Blockbuster earlier than its demise), is actually betting on the corporate’s failure.
Nevertheless, hedge funds underestimated the attachment many players needed to the GameStop model and the facility of retail buyers uniting behind a trigger. There was additionally a extra philosophical facet to why many buyers, myself included, bought shares associated to the damaged conventional finance system. As a Bitcoiner, this message resonated with me, and I purchased shares aspiring to HODL ‘to the moon.’
Lengthy story brief, retail buyers, primarily by means of Robinhood (but in addition all all over the world,) actively piled in, shopping for GME shares aggressively within the hope that it could power the hedge funds to shut their shorts at greater costs and set off a brief squeeze. This tactic did inflict vital losses on some hedge funds, though many had the monetary buffer to soak up these losses.
The dearth of real-time short-interest reporting additional difficult issues. Hedge funds have been capable of shut their brief positions with out the data of retail buyers, perpetuating the brief squeeze narrative and leaving it unclear whether or not all brief positions have really been lined.
Additional, as many buyers entered the fray above $100, they weren’t as impressed with the 2x or 3x enhance in worth. Finally, from the $3 unique value level to the place it peaked earlier than Robinhood turned off buy orders, GME rallied round 11,000% in a few months.
For all intents and functions, GME had a monumental brief squeeze, adopted by a additional 700% secondary squeeze a few months later.
But, to at the present time, there are buyers on Reddit who’re adamant that the shorts have nonetheless not been lined, and a MOASS that can take GME costs over $1 million is on the horizon.
Now, how does this relate to Bitcoin?
Bitcoin’s mom of all provide squeezes.
Bitcoin and GameStop differ in some ways. Finally, GameStop is a conventional fairness that was being bullied out of existence by TradFi, whereas Bitcoin is a answer to the inherent issues of TradFi as a complete.
Nevertheless, GameStop, particularly GME, represented a related ethos at one level in its historical past. Earlier than it grew to become the poster baby for ‘meme’ shares, to many, GME was about unifying retail buyers towards ‘the man.’ It was a solution to battle again towards company greed, devouring every thing in its path.
This ultimate nonetheless drives these of r/superstonk or regardless of the present subreddit is for the die-hard GME diamon palms. Nevertheless, in my opinion, whereas that’s now however a mere misguided dream, there may be a real alternative with Bitcoin for a actual MOASS.
The chart under highlights some key points of the GameStop and Bitcoin comparability. The important thing drivers are the halving, Bitcoin ETF inflows, and scarce provide.
| GameStop | Bitcoin |
|---|---|
| Excessive brief curiosity | Majority of BTC in private chilly storage |
| Retail purchases cut back provide | ETFs launch and purchase Bitcoin |
| Worth enhance to cowl shorts | ETF demand outpaces provide |
| 5 million new shares issued value $1.2 billion | Mounted issuance per block |
| Limitless provide of shares | Mounted provide of Bitcoin |
| Worth falls as shorts cowl | Worth will increase after halving |
| Worth falls as shares diluted | Worth will increase as provide dries up |
Bitcoin’s mounted provide contrasts starkly with GameStop’s means to subject extra shares, which occurred six months after the short squeeze. Bitcoin’s restricted provide and rising inflows into Bitcoin ETFs recommend a looming provide squeeze. This might mirror the GameStop situation however in a distinctive, Bitcoin-specific context.
In distinction, the Bitcoin market operates with larger transparency, because of blockchain know-how. This brings us to the relevance of this comparability to Bitcoin. In contrast to GameStop, which may subject extra shares, Bitcoin has a strictly restricted provide. With the present charge of inflows into Bitcoin ETFs, a provide squeeze is turning into more and more doubtless. This example might parallel the GameStop brief squeeze however in a completely different context.
Situations required for a provide squeeze.
Sure circumstances have to be met for such a Bitcoin provide squeeze.
First, the continual influx into Bitcoin ETFs is essential. The latest addition of Bitcoin ETFs into different funds is a nice signal of this enduring.
Secondly, Bitcoin holders must switch their holdings into chilly storage, making it inaccessible to over-the-counter (OTC) desks.
In contrast to conventional brokerages, platforms like Coinbase can’t merely lend out Bitcoin because it’s not commingled, providing a layer of safety towards such practices. Nevertheless, the latest outflows from Grayscale point out that there’s nonetheless ample liquidity out there for main gamers like BlackRock, Bitwise, Constancy, and ARK to buy Bitcoin.
The scenario might shift dramatically if the New child 9 ETFs amass holdings within the vary of $30-40 billion every. Contemplating that roughly 2.3 million Bitcoins are on exchanges and about 4.2 million are liquid and frequently traded, a good portion of Bitcoin might be absorbed or turn into illiquid. If the pattern in the direction of storing Bitcoin in chilly storage continues and buying and selling diminishes, the out there Bitcoin for OTC desks might lower markedly.
Ought to ETFs persist in buying Bitcoin, and particular person customers proceed to purchase and retailer it in chilly storage, we might see a notable rise in Bitcoin costs inside 18 months resulting from diminishing market availability. This example might immediate ETFs to buy at greater costs, elevating questions in regards to the sustainability of demand for these ETFs at elevated Bitcoin valuations.
Bitcoin in chilly storage vs GameStop ComputerShare.
The true GameStop HODLers transferred their GME shares to Computershare to stop shares from being lent out for shorting, akin to placing Bitcoin in chilly storage. They did this to try to restrict provide. Nevertheless, this didn’t cease the GameStop board from issuing extra shares, which can by no means occur with Bitcoin.
Thus, the market might witness a vital shift if the pattern of transferring Bitcoin to chilly storage accelerates, coupled with persistent ETF purchases. About 4.2 million Bitcoins at the moment are thought-about liquid and out there for normal buying and selling. Nevertheless, if this liquidity decreases by means of lowered buying and selling exercise or elevated storage in chilly wallets, the availability accessible to over-the-counter (OTC) desks might diminish quickly.
This potential shortage raises intriguing situations. Ought to ETFs proceed their shopping for spree, and retail customers additionally maintain buying Bitcoin, directing it into chilly storage, we might be on the cusp of a vital provide squeeze. Based mostly on present information, if influx charges stay fixed, this convergence would possibly happen as quickly as subsequent yr, primarily influenced by main gamers like BlackRock shopping for from the out there liquid provide. If retail customers take away all Bitcoin from exchanges, there’s scope for it to occur sooner.
Pyschology of buyers and momentum buying and selling.
The entire provide of Bitcoin that may be thought-about doubtlessly liquid continues to be substantial, round 15 million. Because of this the potential provide at any value must be thought-about, as even long-term HODLers might be satisfied to promote at costs above the final all-time excessive. Whereas it’s not a assured consequence, the chance is intriguing.
The psychology of retail buyers, already confirmed vital in circumstances like GameStop, might additionally play a essential position in Bitcoin’s situation. The recommendation to ‘HODL,’ purchase Bitcoin, and spend money on ETFs might resonate strongly with buyers who share this mindset.
Notably, the enchantment of Bitcoin ETFs lies partly of their affordability and accessibility; they’re priced a lot decrease than an precise Bitcoin, making them engaging to a broader viewers. This psychological facet, much like the perceived affordability of tokens like Shiba Inu or Dogecoin, might drive investor conduct towards Bitcoin ETFs.
Finally, the parallels between the GameStop saga and the potential provide dynamics within the Bitcoin market are putting. The mixed impact of continued purchases by ETFs and the pattern of Bitcoin holders transferring their belongings to chilly storage might result in a ‘mother of all supply squeezes’ within the Bitcoin market. Whereas numerous components are at play, and the result shouldn’t be inevitable, the potential for a vital shift within the Bitcoin market is an thrilling prospect. Because the scenario unfolds, will probably be attention-grabbing to watch how the interaction of retail investor psychology, ETF inflows, and Bitcoin’s distinctive provide traits shapes the market.
