Might Bitcoin echo GameStop with a Mom Of All Provide Squeezes? Possibly

The 2021 GameStop saga, not too long ago featured in a Netflix film, could have surprising parallels with Bitcoin, notably within the context of a possible provide crunch.

Echoes of the Reddit-fueled’ mom of all brief squeezes’ (MOASS) for GameStop, in Bitcoin’s context, might manifest as a big provide squeeze, or ‘Bitcoin Mom Of All Provide Squeezes’ (Bitcoin MOASS.) I’ve referenced this in a number of articles this yr, however I wished to interrupt down precisely why I believe this might occur.

To grasp this higher, let’s revisit the GameStop phenomenon.

I wasn’t early sufficient to comply with Roaring Kitty by way of his preliminary thesis on GME at round $3 per share. Nonetheless, I used to be energetic throughout the WallStreetBets subreddit, and by the point the inventory hit $13, it was arduous to disregard his day by day updates. Across the $50 (pre-stock cut up) worth, I cracked and ‘YOLOed’ in and took the journey as much as $500, decided to carry for the moon or bust. In the end, I bust, however I loved being 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 straightforward prey in a retail retailer headed for chapter with the added ache of the pandemic. Seemingly, the purpose was to brief the inventory to zero. This technique, usually employed in opposition to faltering firms (like Blockbuster earlier than its demise), is basically betting on the corporate’s failure.

Nonetheless, hedge funds underestimated the attachment many players needed to the GameStop model and the facility of retail traders uniting behind a trigger. There was additionally a extra philosophical side to why many traders, myself included, bought shares associated to the damaged conventional finance system. As a Bitcoiner, this message resonated with me, and I purchased shares meaning to HODL ‘to the moon.’

Lengthy story brief, retail traders, primarily by way of Robinhood (but additionally all around the globe,) actively piled in, shopping for GME shares aggressively within the hope that it will power the hedge funds to shut their shorts at increased 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 shortage 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 traders, perpetuating the brief squeeze narrative and leaving it unclear whether or not all brief positions have really been lined.

Additional, as many traders entered the fray above $100, they weren’t as impressed with the 2x or 3x enhance in worth. In the end, from the $3 unique worth level to the place it peaked earlier than Robinhood turned off purchase orders, GME rallied round 11,000% in a couple of months.

For all intents and functions, GME had a monumental brief squeeze, adopted by an extra 700% secondary squeeze a couple of months later.

But, to at the present time, there are traders on Reddit who’re adamant that the shorts have nonetheless not been lined, and a MOASS that may 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. In the end, GameStop is a standard fairness that was being bullied out of existence by TradFi, whereas Bitcoin is an answer to the inherent issues of TradFi as an entire.

Nonetheless, GameStop, particularly GME, represented an identical 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 traders in opposition to ‘the person.’ It was a option to battle again in opposition to company greed, devouring every part in its path.

This best nonetheless drives these of r/superstonk or regardless of the present subreddit is for the die-hard GME diamon fingers. Nonetheless, in my opinion, whereas that’s now however a mere misguided dream, there’s a real alternative with Bitcoin for an actual MOASS.

The chart under highlights some key elements of the GameStop and Bitcoin comparability. The important thing drivers are the halving, Bitcoin ETF inflows, and scarce provide.

Bitcoin’s fastened provide contrasts starkly with GameStop’s means to situation extra shares, which occurred six months after the brief squeeze. Bitcoin’s restricted provide and growing inflows into Bitcoin ETFs counsel a looming provide squeeze. This might mirror the GameStop state of affairs however in a singular, Bitcoin-specific context.

In distinction, the Bitcoin market operates with higher transparency, because of blockchain know-how. This brings us to the relevance of this comparability to Bitcoin. Not like GameStop, which may situation extra shares, Bitcoin has a strictly restricted provide. With the present price of inflows into Bitcoin ETFs, a provide squeeze is turning into more and more doubtless. This case might parallel the GameStop brief squeeze however in a unique context.

Situations required for a provide squeeze.

Sure situations should 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 superb signal of this enduring.

Secondly, Bitcoin holders have to switch their holdings into chilly storage, making it inaccessible to over-the-counter (OTC) desks.

Not like conventional brokerages, platforms like Coinbase can’t merely lend out Bitcoin because it’s not commingled, providing a layer of safety in opposition to such practices. Nonetheless, the latest outflows from Grayscale point out that there’s nonetheless ample liquidity available in the market for main gamers like BlackRock, Bitwise, Constancy, and ARK to buy Bitcoin.

The state of affairs 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 development in direction of storing Bitcoin in chilly storage continues and buying and selling diminishes, the accessible 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 case might immediate ETFs to buy at increased 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. Nonetheless, this didn’t cease the GameStop board from issuing extra shares, which is able to by no means occur with Bitcoin.

Thus, the market might witness a big shift if the development 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 accessible for normal buying and selling. Nonetheless, if this liquidity decreases by way 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 eventualities. Ought to ETFs proceed their shopping for spree, and retail customers additionally hold buying Bitcoin, directing it into chilly storage, we might be on the cusp of a big 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 accessible liquid provide. If retail customers take away all Bitcoin from exchanges, there’s scope for it to occur sooner.

Pyschology of traders and momentum buying and selling.

The entire provide of Bitcoin that may be thought-about doubtlessly liquid remains to be substantial, round 15 million. Which means that the potential provide at any worth 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 final result, the likelihood is intriguing.

The psychology of retail traders, already confirmed vital in circumstances like GameStop, might additionally play an important position in Bitcoin’s state of affairs. The recommendation to ‘HODL,’ purchase Bitcoin, and spend money on ETFs might resonate strongly with traders 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 side, much like the perceived affordability of tokens like Shiba Inu or Dogecoin, might drive investor conduct towards Bitcoin ETFs.

In the end, the parallels between the GameStop saga and the potential provide dynamics within the Bitcoin market are placing. The mixed impact of continued purchases by ETFs and the development of Bitcoin holders transferring their property to chilly storage might result in a ‘mom of all provide squeezes’ within the Bitcoin market. Whereas varied elements are at play, and the result just isn’t inevitable, the potential for a big shift within the Bitcoin market is an thrilling prospect. Because the state of affairs unfolds, will probably be fascinating to look at how the interaction of retail investor psychology, ETF inflows, and Bitcoin’s distinctive provide traits shapes the market.