The 2021 GameStop saga, not too long ago featured in a Netflix film, might have sudden 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 vital provide squeeze, or ‘Bitcoin Mom Of All Provide Squeezes’ (Bitcoin MOASS.) I’ve referenced this in a number of articles this yr, however I needed 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 observe Roaring Kitty via his preliminary thesis on GME at round $3 per share. Nevertheless, I used to be lively inside the WallStreetBets subreddit, and by the point the inventory hit $13, it was laborious to disregard his day by day updates. Across the $50 (pre-stock cut 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 quick squeeze thesis fundamentals.

For these unfamiliar, GameStop shares had 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 aim was to quick the inventory to zero. This technique, typically employed in opposition to faltering corporations (like Blockbuster earlier than its demise), is basically betting on the corporate’s failure.

Nevertheless, hedge funds underestimated the attachment many avid gamers needed to the GameStop model and the ability 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 quick, retail traders, primarily via Robinhood (but in addition 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 sophisticated issues. Hedge funds had been in a position to shut their quick positions with out the information of retail traders, perpetuating the quick squeeze narrative and leaving it unclear whether or not all quick 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. Finally, from the $3 authentic 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 quick 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. Finally, 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.

Nevertheless, GameStop, particularly GME, represented an identical ethos at one level in its historical past. Earlier than it grew to become the poster little one for ‘meme’ shares, to many, GME was about unifying retail traders in opposition to ‘the person.’ It was a option to combat 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 fingers. 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 points 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 capability to challenge 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 state of affairs however in a singular, Bitcoin-specific context.

In distinction, the Bitcoin market operates with higher transparency, because of blockchain expertise. This brings us to the relevance of this comparability to Bitcoin. Not like GameStop, which might challenge extra shares, Bitcoin has a strictly restricted provide. With the present charge of inflows into Bitcoin ETFs, a provide squeeze is turning into more and more doubtless. This example may parallel the GameStop quick squeeze however in a distinct context.

Circumstances required for a provide squeeze.

Sure circumstances 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 superb 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 available in the market for main gamers like BlackRock, Bitwise, Constancy, and ARK to buy Bitcoin.

The state of affairs 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 could possibly be absorbed or change 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 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 example may 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 forestall shares from being lent out for shorting, akin to placing Bitcoin in chilly storage. They did this to try 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 major shift if the development of transferring Bitcoin to chilly storage accelerates, coupled with persistent ETF purchases. About 4.2 million Bitcoins are actually thought-about liquid and accessible for normal buying and selling. Nevertheless, if this liquidity decreases via diminished 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 eventualities. Ought to ETFs proceed their shopping for spree, and retail customers additionally preserve buying Bitcoin, directing it into chilly storage, we could possibly 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 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 complete provide of Bitcoin that may be thought-about probably liquid continues to be substantial, round 15 million. Which means the potential provide at any worth must be thought-about, as even long-term HODLers could possibly 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 traders, already confirmed vital in instances like GameStop, may additionally play a vital position in Bitcoin’s state of affairs. The recommendation to ‘HODL,’ purchase Bitcoin, and spend money on ETFs may resonate strongly with traders 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, 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 putting. The mixed impact of continued purchases by ETFs and the development of Bitcoin holders shifting their belongings to chilly storage may result in a ‘mom of all provide squeezes’ within the Bitcoin market. Whereas numerous 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 state of affairs unfolds, it is going to be attention-grabbing to look at how the interaction of retail investor psychology, ETF inflows, and Bitcoin’s distinctive provide traits shapes the market.