Could Bitcoin echo GameStop with a Mother Of All Supply Squeezes? Maybe

The 2021 GameStop saga, just lately featured in a Netflix film, might have surprising parallels with Bitcoin, notably within the context of a possible provide crunch.

Echoes of the Reddit-fueled’ mom of all quick squeezes’ (MOASS) for GameStop, in Bitcoin’s context, may manifest as a major 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 via his preliminary thesis on GME at round $3 per share. Nonetheless, I used to be energetic inside the WallStreetBets subreddit, and by the point the inventory hit $13, it was onerous to disregard his day by day updates. Across the $50 (pre-stock break up) worth, 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 part of one thing.

GameStop quick 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 quick the inventory to zero. This technique, usually employed in opposition to faltering corporations (like Blockbuster earlier than its demise), is basically betting on the corporate’s failure.

Nonetheless, hedge funds underestimated the attachment many avid gamers needed to the GameStop model and the facility of retail buyers uniting behind a trigger. There was additionally a extra philosophical side 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 meaning to HODL ‘to the moon.’

Lengthy story quick, retail buyers, primarily via Robinhood (but additionally all world wide,) 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 dearth of real-time short-interest reporting additional sophisticated issues. Hedge funds have been capable of shut their quick positions with out the data of retail buyers, perpetuating the quick squeeze narrative and leaving it unclear whether or not all quick 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 worth level to the place it peaked earlier than Robinhood turned off purchase orders, GME rallied round 11,000% in a number of months.

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

But, to this present day, 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 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 turned the poster baby for ‘meme’ shares, to many, GME was about unifying retail buyers in opposition to ‘the person.’ It was a option to struggle again in opposition to company greed, devouring every little thing 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, for my part, 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.

GameStopBitcoinHigh quick interestMajority of BTC in private chilly storageRetail purchases scale back supplyETFs launch and purchase BitcoinPrice enhance to cowl shortsETF demand outpaces supply5 million new shares issued value $1.2 billionFixed issuance per blockUnlimited provide of sharesFixed provide of BitcoinPrice falls as shorts coverPrice will increase after halvingPrice falls as shares dilutedPrice will increase as provide dries up

Bitcoin’s mounted provide contrasts starkly with GameStop’s skill to concern extra shares, which occurred six months after the quick squeeze. Bitcoin’s restricted provide and growing inflows into Bitcoin ETFs recommend a looming provide squeeze. This might mirror the GameStop situation 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 might concern extra shares, Bitcoin has a strictly restricted provide. With the present price of inflows into Bitcoin ETFs, a provide squeeze is changing into more and more probably. This case may parallel the GameStop quick squeeze however in a unique context.

Situations required for a provide squeeze.

Sure situations have to be met for such a Bitcoin provide squeeze.

First, the continual influx into Bitcoin ETFs is essential. The current addition of Bitcoin ETFs into different funds is a good 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 current 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 scenario may 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 repeatedly traded, a good portion of Bitcoin might be absorbed or turn out to be illiquid. If the pattern in direction of storing Bitcoin in chilly storage continues and buying and selling diminishes, the out there Bitcoin for OTC desks may lower markedly.

Ought to ETFs persist in buying Bitcoin, and particular person customers proceed to purchase and retailer it in chilly storage, we may see a notable rise in Bitcoin costs inside 18 months as a result of diminishing market availability. This case may immediate ETFs to buy at increased costs, elevating questions concerning 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 forestall shares from being lent out for shorting, akin to placing Bitcoin in chilly storage. They did this to aim 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 may witness a major shift if the pattern of transferring Bitcoin to chilly storage accelerates, coupled with persistent ETF purchases. About 4.2 million Bitcoins are actually thought-about liquid and out there for normal buying and selling. Nonetheless, if this liquidity decreases via lowered buying and selling exercise or elevated storage in chilly wallets, the availability accessible to over-the-counter (OTC) desks may diminish quickly.

This potential shortage raises intriguing situations. Ought to ETFs proceed their shopping for spree, and retail customers additionally preserve buying Bitcoin, directing it into chilly storage, we might be on the cusp of a major 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 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 end result, the chance is intriguing.

The psychology of retail buyers, already confirmed vital in circumstances like GameStop, may additionally play an important position in Bitcoin’s situation. The recommendation to ‘HODL,’ purchase Bitcoin, and put money into ETFs may resonate strongly with buyers who share this mindset.

Notably, the attraction of Bitcoin ETFs lies partly of their affordability and accessibility; they’re priced a lot decrease than an precise Bitcoin, making them enticing to a broader viewers. This psychological side, just like the perceived affordability of tokens like Shiba Inu or Dogecoin, may drive investor conduct towards Bitcoin ETFs.

Finally, 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 pattern of Bitcoin holders shifting their property to chilly storage may result in a ‘mom of all provide squeezes’ within the Bitcoin market. Whereas varied components are at play, and the end result is just not inevitable, the potential for a major shift within the Bitcoin market is an thrilling prospect. Because the scenario 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.