[📰] - You can't keep a good stock down

also Michael Saylor bought the dip and no more need for Tether FUD

In this issue:

  • You can’t keep a good stock down

  • Tether settles with the NYAG

  • Michael Saylor bought the dip

You can’t keep a good stock down

Sure, yeah, why not? Having staggered around for a week or so at $45-50/share refusing to die, GameStop (GME) stock suddenly and explosively quadrupled in price towards the end of close and during after hours trading.

This is all very familiar! GameStop is of course is the meme-stock that got so explosive at the end of January that it nearly tanked Robinhood. You can read the full story here and here but the essentially some traders on Reddit caught some hedge funds in an embarrassingly bad trade and everything went haywire. GameStop soared to almost $400/share, Robinhood and other exchanges shut trading down entirely and then everyone went to Twitter to enjoy some healthy civil discourse.

It was kind of a big deal! Congress even had a hearing about it with testimony from hedge fund managers and exchange CEOs and Reddit day traders. Nobody invited anyone from GameStop itself, of course. GameStop didn’t have anything to do with it.

I imagine it is probably a little difficult and unpleasant to be an executive at GameStop right now. Your company is a big deal but it is also maybe kind of a joke? On paper you are wealthy but also the SEC is issuing pre-emptive letters about how you need to be really careful if you sell stock because it is maybe fraud? Also now your stock is doing the thing again for some reason.

Maybe that’s why GameStop’s CFO Jim Bell just announced his retirement. I have to assume this was not the job he had in mind when he signed up.

Tether settles with the NYAG, agrees to audits

Tether has finally settled their multi-year dispute with the New York Attorney General. The basic gist of the complaint is that Tether loaned some of the USD reserves that were meant to back the Tether token to its sister company BitFinex, which needed the money to cover losses after a large theft. They were also late in disclosing this choice and not very transparent when they did disclose it.

Tether agreed to pay $18.5M in fines (which is basically a parking ticket) and to not service NY based customers - which since they did not hold a BitLicense they were already not allowed to do. They did not formally admit to any wrongdoing.

The NYAG Letitia James described the result like this:

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines. Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.”

Tether’s attorneys described the result like this:

“To the Attorney General’s office’s credit, after two and a half years of investigation, [its] findings are limited only to the nature and timing of certain disclosures and contrary to online speculation, there was no finding that Tether ever issued tethers without backing or to manipulate crypto prices.”

For Bitcoin investors I think there are two things that matter here:

  1. Tether/Bitfinex are no longer under active legal threat from the NYAG.

  2. Tether has agreed to regular audits of their USD reserve going forward.

Together these two facts will drain a lot of the heat from the argument that Tether is phantom money artificially propping up the Bitcoin market. It will be a relief to finally be able to move on.

Michael Saylor bought the dip

Bitcoin experienced its second major drawdown of the bull cycle this week, dropping more than ~20% from ~$58k/btc to almost ~$45k/btc.

It’s a little counterintuitive but this particular drawdown was actually probably bullish in the medium term. As the market gets more optimistic traders are more aggressive about borrowing dollars so they can go long on Bitcoin with more margin. You can see this in the "funding rate" - basically the cost to borrow dollars on an exchange. The higher the cost to borrow is, the more demand there is for trading on margin.

Margin trading increases your returns when you are right - but it also makes your position more brittle. The more margin you have the smaller a price movement against you it takes to liquidate your position. When everyone is using lots of margin, the entire market becomes fragile. A small turn down can force traders to abruptly sell to close their positions, pushing the price down further and knocking other traders out of their positions like dominoes.

In total this movement down liquidated about $6B worth of leveraged positions. The "funding rate" has returned to normal levels - suggesting that the market has purged itself of excess leverage and is now back to a price it has confidence in.

Meanwhile this movement didn’t alarm the big companies making treasury moves into Bitcoin. Square announced they had acquired ~3318 Bitcoin for $170M (~$51.2k/btc) - representing ~5% of their cash holdings. Business Intelligence company turned Bitcoin debt arbitrage vehicle MicroStrategy announced they had completed acquisition of an additional ~19,452 bitcoins for $1.026B (~$52.8k/btc). If you sold your bitcoin into this dip, these are the kinds of institutions you are selling to.

Other things happening right now:

  • Bitcoin good. Regulate speech bad. Thank you for coming to my TED talk.

  • The Fedwire went down today. Bitcoin did not.

  • This is what it was like to care about Bitcoin in 2013.