The 2021 GameStop saga, not too long ago 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 brief squeezes’ (MOASS) for GameStop, in Bitcoin’s context, may manifest as a vital provide squeeze, or ‘Bitcoin Mom Of All Provide Squeezes’ (Bitcoin MOASS.) I’ve referenced this in a number of articles this 12 months, 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 means of his preliminary thesis on GME at round $3 per share. Nevertheless, I used to be energetic inside the WallStreetBets subreddit, and by the point the inventory hit $13, it was exhausting to disregard his every day updates. Across the $50 (pre-stock break up) worth, I cracked and ‘YOLOed’ in and took the trip as much as $500, decided to carry for the moon or bust. Finally, 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 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 in opposition to faltering firms (like Blockbuster earlier than its demise), is actually betting on the corporate’s failure.

Nevertheless, 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 aspiring to HODL ‘to the moon.’

Lengthy story brief, retail buyers, primarily by means of Robinhood (but in addition all around the globe,) actively piled in, shopping for GME shares aggressively within the hope that it might 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 shortage of real-time short-interest reporting additional sophisticated issues. Hedge funds have been in a position to 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 worth level to the place it peaked earlier than Robinhood turned off purchase orders, GME rallied round 11,000% in just a few months.

For all intents and functions, GME had a monumental brief squeeze, adopted by an extra 700% secondary squeeze just 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 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. 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 a complete.

Nevertheless, GameStop, particularly GME, represented an identical ethos at one level in its historical past. Earlier than it grew to become the poster youngster for ‘meme’ shares, to many, GME was about unifying retail buyers in opposition to ‘the person.’ It was a method to struggle again in opposition to company greed, devouring every part in its path.

This preferrred nonetheless drives these of r/superstonk or regardless of the present subreddit is for the die-hard GME diamon palms. Nevertheless, 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 beneath highlights some key features 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 concern extra shares, which occurred six months after the brief squeeze. Bitcoin’s restricted provide and rising 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, due to 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 fee of inflows into Bitcoin ETFs, a provide squeeze is changing into more and more doubtless. This case may parallel the GameStop brief squeeze however in a special context.

Situations required for a provide squeeze.

Sure circumstances should 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 must 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. Nevertheless, the current 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 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 recurrently traded, a good portion of Bitcoin might be absorbed or turn out to be illiquid. If the development in the direction of storing Bitcoin in chilly storage continues and buying and selling diminishes, the accessible 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 consequence of diminishing market availability. This case may 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 forestall shares from being lent out for shorting, akin to placing Bitcoin in chilly storage. They did this to aim 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 may 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 of liquid and accessible 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 provision 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 big provide squeeze. Based mostly on present knowledge, if influx charges stay fixed, this convergence would possibly happen as quickly as subsequent 12 months, 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 buyers and momentum buying and selling.

The complete provide of Bitcoin that may be thought of doubtlessly liquid continues to be substantial, round 15 million. Which means the potential provide at any worth must be thought of, 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 likelihood is intriguing.

The psychology of retail buyers, already confirmed vital in instances like GameStop, may additionally play an important function in Bitcoin’s state of affairs. The recommendation to ‘HODL,’ purchase Bitcoin, and put money into ETFs may 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 enticing to a broader viewers. This psychological side, much 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 development of Bitcoin holders shifting their property to chilly storage may result in a ‘mom of all provide squeezes’ within the Bitcoin market. Whereas numerous elements are at play, and the result will not be inevitable, the potential for a big shift within the Bitcoin market is an thrilling prospect. Because the scenario unfolds, it will likely be fascinating to look at how the interaction of retail investor psychology, ETF inflows, and Bitcoin’s distinctive provide traits shapes the market.