The stock market has seen an uptick in volatility for specific stocks, due to an unexpected act of coordination among individual investors. Shares of GameStop increased by many multiples, with hedge funds that had shorted the company realizing massive losses. Elon Musk moved Bitcoin markets early Friday morning by expressing positive sentiment about the currency on Twitter. Ray Dalio and Bill Miller have indicated that their funds are considering direct allocations to Bitcoin.
GameStop Short Squeeze
The past week was marked by unprecedented volatility amongst a select group of small to mid-cap stocks. GameStop, among others such as BlackBerry and AMC, has been a battleground for traders. The company is heavily shorted, primarily by large hedge funds expecting a decline in revenues. However, a large group of individual investors organized on Reddit to buy GameStop shares simultaneously, driving up share prices dramatically. The rising price created large losses for the short sellers, many of whom were forced to buy back shares to close their positions, further increasing demand for the stock. Brokerages, such as Robinhood and TD Ameritrade, restricted trading of the stock or related options contracts in response to this trading activity. Many participants accused the brokerages of market manipulation, citing potential overlapping financial interests with funds that were losing money from the stock’s price appreciation. Many branches of the U.S. government have already responded to the incident. Congress members from both parties denounced the restrictions in a rare case of bipartisan agreement. The ongoing battles, both financial and legal, have turned into a symbolic movement of the middle class against the power structure created by Wall Street incumbents.
Elon Musk Publicly Supports Bitcoin
Elon Musk updated his Twitter biography to the word “Bitcoin” towards the end of the week. He accompanied this with a cryptic tweet reading “In retrospect, it was inevitable.” The sentiment resulted in a rapid price increase of roughly 20% for Bitcoin, before it returned to around $33,500 at the time of writing. This is the latest, and possibly the strongest evidence that the billionaire is considering the currency personally and as a reserve asset for Tesla’s balance sheet. Musk and Microstrategy CEO Michael Saylor have previously exchanged thoughts on Twitter about the use of Bitcoin as a reserve asset for large companies. Musk has yet to explicitly clarify the meaning behind his recent messages.
Ray Dalio and Bill Miller See The Value of Bitcoin
Bridgewater Founder Ray Dalio issued a statement addressing Bitcoin, calling it “one hell of an invention.” The statement made it clear that he wishes to do more research before pursuing an investment and outlined potential risks associated with Bitcoin exposure. Dalio’s interest represents a significant reversal in sentiment, having previously stated that “Bitcoin is a highly speculative market. Bitcoin is a bubble.” Dalio indicated that Bridgewater is actively considering an allocation to Bitcoin in at least one fund, but more research is needed before taking such a position. Bill Miller expressed similarly positive sentiments in his investor newsletter, and even dismissed some of the concerns which Dalio addressed. Miller expressed interest in a Bitcoin allocation through one of his primary funds, but noted that such a move would be legally difficult.
The U.S. financial system continues to experience chaos as individual investors go head-to-head with large financial players. The market control expressed by incentivized parties reiterates the need for decentralized methods of exchanging value. Elon Musk & Ray Dalio are the most recent executives to indicate that large institutional Bitcoin allocations might be on the horizon.