Long Reads Sunday by @nlw

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Long Reads Sunday #98
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Long Reads Sunday #98

Nathaniel Whittemore
Jun 14, 2020
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Happy Sunday from the Hudson Valley

This was the rare week where the stock market made the crypto markets look tame in comparison. The main theme that has been dominating for me is the Robinhood rally - the mass of day traders taking nihilist markets to their logical conclusion.

Twitter avatar for @nlwNathaniel Whittemore @nlw
Everyone pearl clutching at the Robinhoid insurgency like this isn’t just a completely rational response to an economy that has prioritized number go up over everything else for more than a decade.. Why not pump a zombie company 900%? When the game is rigged, break the rules.

June 10th 2020

7 Retweets81 Likes

Somewhat related is the Fed’s ongoing and continued insistence that its policies have nothing to do with growing wealth inequality.

Both of these topics on our main discussion, but first - the news and the week’s podcast run. Happy Long Reads.

NLW


This Week’s Top Bitcoin & Crypto News

  • Just as India’s crypto scene revs up, the government looks to be trying to ban it again

  • Bitcoin’s realized market capitalization hit a new ATH this week

  • A good old fashioned Coinbase Pump

  • A new hire suggests Gemini is looking to expand to Asia

  • Congress hears testimony about a digital dollar

  • And speaking of a digital dollar, the National Science Foundation is funding crypto dollar research

  • A new report from Fidelity shows growing interest in bitcoin from institutions

  • Brave has partnered with K-Pop sensations BTS on a limited edition browser

  • The latest in Bitmain power struggle is causing shipping delays

  • Investment giant Vanguard has completed the first part of a securities digitization pilot

  • The Saudi central bank has turned to blockchain to inject significant liquidity into the country’s banking system

  • Microsoft has released a beta version of its bitcoin-powered digital identity software

  • Bakkt and Galaxy join forces in the battle for crypto prime brokerage

  • The Human Rights Foundation has announced a new bitcoin developer grant program

  • Three Arrows Capital owns more than 6% of the Grayscale Bitcoin Trust

  • Unstoppable Domains, in partnership with IPFS, has launched a new censorship resistant blogging service


This week on The Breakdown podcast

Monday | Why War Reporting Is the Right Mental Model for Today’s Media, Feat. Jake Hanrahan The founder of Popular Front joins NLW for a discussion about protests, media and how the people being covered tend to not reflect divisive politics.

Tuesday | What the Stock Market’s ‘Robinhood Rally’ Means for Bitcoin The largest 50-day rally in stock market history and even shares of bankrupt companies are up more than 100%. What is going on?

Wednesday | A Vision for Digital Property Rights, Feat. Nic Carter Most people today look at social platforms like any other private company, but what if we saw them as alternative jurisdictions with a new set of property rights?

Thursday | Why the Fed Keeps Denying Its Role in Increasing Inequality The Federal Reserve expects low inflation, says rates will stay close to zero through 2022 and keeps lying about the role of central banks in increasing inequality.

Friday | Bitcoin Is More Than an Inflation Hedge While fears of a “great monetary inflation” have driven the recent bitcoin narrative, other aspects like censorship resistance and peaceful protest matter just as much.

Saturday | The Chad Index Versus Doomer Internet Money: The Breakdown Weekly Recap This week, the wildest, most nonsensical, volatile part of the market wasn’t bitcoin, it was the “Robinhood Rally” in equities.

Twitter avatar for @nlwNathaniel Whittemore @nlw
Bitcoin, Property Rights, and Why The Old West Says You Should Own Your Socials *Really* fun @BreakdownNLW brainstorm with @nic__carter on why we should think about digital property rights around our social media in a totally different way On @CoinDesk
Bitcoin and a Vision for Digital Property Rights, Feat. Nic Carter - CoinDeskMost people look at social platforms like any other private company. What if we saw them as alternative jurisdictions with a new set of property rights?coindesk.com

June 11th 2020

14 Retweets44 Likes

Our Main Theme: The Robinhood Rally - Why Bankrupt Company Stocks Are Pumping And What It Means For Bitcoin

Note: I wrote this on Wednesday. Since then, in the wake of dreary comments by the Fed, the market saw a bit of a selloff but the fundamentals of what I wrote still apply.

At least when it was crypto markets going bonkers it made sense.

The bubble of 2017 had a lot of things going for it. Tokenization had created an entirely new mechanism that let people trade effortlessly. There was hype in the air and the promise of an entirely new technology movement.

Twitter avatar for @avichalAvichal Garg (Electric Capital) ⚡ @avichal
The stock market in 2020 feels like the crypto market in 2017.

June 6th 2020

118 Retweets1,195 Likes

When it comes to the stock market right now, it could give the crypto markets in 2017 a run for their money.

Let’s start with what’s happening in markets.

Since March 23, the markets have seen their largest 50 day gain in history.

Twitter avatar for @RyanDetrickRyan Detrick, CMT @RyanDetrick
This is going to go down as the greatest 50-day rally ever for the S&P 500 Index. Take note, the previous 7 other largest 50-day rallies saw stocks higher 6- and 12-months later every single time.
Image

June 3rd 2020

203 Retweets404 Likes

In fact, not a single stock is down in 10 weeks.

Twitter avatar for @TheStalwartJoe Weisenthal @TheStalwart
Not a single S&P 500 stock is down over the last 10 weeks
Bloomberg - Are you a robot?bloomberg.com

June 8th 2020

200 Retweets560 Likes

Companies with no product and no revenue have higher market caps than Ford.

Twitter avatar for @charliebilelloCharlie Bilello @charliebilello
At $33 billion, Nikola's market cap is now higher than Ford's ($30 billion). Nikola has $0 revenue vs. $150 billion for Ford over the last year. $NKLA $F

Charlie Bilello @charliebilello

I love the smell of mania in the morning. https://t.co/L62kiMHAj6

June 9th 2020

388 Retweets1,455 Likes

The shift in a matter of days has been remarkable.

Twitter avatar for @choffsteinCorey Hoffstein @choffstein
My timeline went from "worse than 2008" to "it's 1999" real quick.

June 9th 2020

71 Retweets806 Likes

And, as a Bloomberg piece put it "Everywhere You Look Under Surging Stocks Is Fervid Retail Buying”

So what’s the Robinhood part of this story?

Let’s start this with another headline - this time from CNBC: “Robinhood traders cash in on the market comeback that billionaire investors missed”

Robinhood is a stock buying app. It has 10 million users, 3 million of whom signed up during Q1 of this year. The average age of its users is 31.

To get a sense of the mindset of its users, here’s a quote from the above mentioned CNBC article:

“I just started taking it seriously about two months ago,” Godbolt — a New York resident— told CNBC. “I’ve been watching AAL since the beginning of that time and I felt eventually, once Covid relaxed, markets would move up.”

This generation of investors isn’t just embodied in Robinhood.

Before COVID-19 hit, a Bloomberg Businessweek cover story focused on the growing community on Reddit r/wallstreetbets - which was 900,000 members at the time and has surged to 1.3m.

Some have also called this the “Davey Day Trader Effect” after Barstool Sports founder Dave Portnoy, who began day trading to kill time and make money during the shutdowns. Dave’s part of the story - his embodiment of this cohort - brings us to our next point.

Where did the Robinhood crowd come from?

There are a confluence of factors that combined to make this happen when it did:

  • Extra time - many people out of work, no sports or hobbies to kill time with

  • Extra money - there is good evidence that stimulus money went right into the markets (instead of into for example deferred mortgages)

  • Cheap infrastructure - free trading has become the norm over the last year

What have they been betting on?

The strategy has been two part.

The first part is that they’ve simply (shocker!) made common sense bets. Pharma companies trying to address COVID specifically. Kids education companies (hello, home school!). Companies dealing with compliance in a post COVID-19 world.

The second part is that they’ve made a fundamentally different bet than some very storied investors about how long lasting the human behavior impacts of COVID-19 would be. While Buffett sold all his airline stocks, and others were cashing out of cruiselines and casinos, they were betting that people wouldn’t change their behaviors nearly as much and pumped those stocks to the moon.

The third part is the craziest, and the part we’ll get to in just a minute.

First, we need to discuss the relationship between this new cohort and the professionals.

The professionals versus the crowd

Famed investor Stanley Druckenmiller said this week that he was “humbled” by the equities markets. In the wake of his very public decision to drop his airline positions, Buffett has now been proven very publicly wrong.

Dave Portnoy made light of that in a clip from his most recent Davey Day Trader Global.

Twitter avatar for @stoolpresidenteDave Portnoy @stoolpresidente
I should be up a billion dollars with how right I was about cruises and airlines. #ddtg
Image

June 8th 2020

435 Retweets4,062 Likes

Amazingly, this got picked up by MarketWatch.

Twitter avatar for @stoolpresidenteDave Portnoy @stoolpresidente
Who said this! 😂😂😂 #ddtg https://t.co/TXAGI7Ua0y

MarketWatch @MarketWatch

Warren Buffett is ‘an idiot,’ says investor who claims daytrading is ‘the easiest game I’ve ever played’ https://t.co/eyC0cej4lw

June 9th 2020

564 Retweets14,421 Likes

Holding aside the entire master’s thesis I could write on Portnoy and modern media, the resounding thing here is this: the Robinhood crowd does not care about professional investors.

It does not care what CNBC, Bloomberg, or any other financial MSM think.

It only cares about what its group of peers think.

And most of all, it only cares about the game.

Twitter avatar for @stacyherbertStacy Herbrrrt @stacyherbert
Millennials came of age in 2000. Through Robinhood they are betting against & beating the olds like Buffett & Druckenmiller who still believe in balance sheets, earnings, blah blah. Millennials have never known a value based economy in their lives. The economy does NOT matter.

June 5th 2020

75 Retweets397 Likes

The Bankruptcy Bet

This is, of course, best expressed in the Robinhood Revolutions strangest bet of all: bankrupt companies.

Twitter avatar for @TheStalwartJoe Weisenthal @TheStalwart
I’ve seen a lot of unusual micro-bubbles over the years. Cannabis. Blockchain. Fuel cells. Space. Electric cars. Etc. But I don’t think I’d have ever guessed before that *bankruptcy* itself would be an exciting investment theme. unbelievable stuff here
bloomberg.com/news/articles/…
Image

June 8th 2020

283 Retweets1,039 Likes

Could there be any more pure expression of capitalist market nihilism.

In a world where everything is about asset prices and number go up; where the Fed will do whatever it takes with their unlimited cash to ensure that no company can fail, why wouldn’t you take this all the way? Why wouldn’t you take greater fool theory all the way to its ultimate conclusion? Why wouldn’t you pump a zombie company more than 100% in a day?

Twitter avatar for @QTRResearchQuoth the Raven @QTRResearch
Hey @federalreserve @neelkashkari - look at the RUIN that has become of the capital markets. You guys have turned a "market" into the butt of a bad joke. Congrats.

Nate Anderson @ClarityToast

The S&P 500 is now positive YTD despite a massive recession and 21 million still unemployed. Meanwhile, 5 stocks in bankruptcy were up triple digits today despite little to no expected equity recovery: $VAL: +132% $CHK: +175% $WLL: +151% $XOG: +247% $HTZ: +114%

June 8th 2020

37 Retweets261 Likes

There is a facade that we are a consumption-based economy.

We’re not anymore.

We’re an asset price economy. It doesn’t matter that the majority of people don’t own stocks, or that basing so much of our monetary policy on ensuring continued growth in assets rewards the already rich and punishes the poor and savers. This is simply the way of the world.

The Robinhood Revolution is both a pure and a cynical response to the game the Fed and our financial institutions have set up.

If the game is rigged, play it better than the pros.

After all, as Portnoy said, an asteroid could hit the earth and number would still go up.

Twitter avatar for @stoolpresidenteDave Portnoy @stoolpresidente
Stocks 101: It only goes up. It never goes down. And if it does go down they’ll print more Schrute Bucks. #ddtg #fintwit
Image

April 27th 2020

205 Retweets2,109 Likes

So What Does It Mean For Bitcoin?

I see four possible scenarios:

1) The party continues and it crowds out space for crypto - in other words, if you can watch $10k in Hertz turn into $125k a few weeks later, who needs shitcoins?

2) Good for “crypto” - in this scenario, which involves stocks continuing up, at some point people start looking for other sources of alpha and move beyond markets to the altcoin casino.

Twitter avatar for @nlwNathaniel Whittemore @nlw
Does the Robinhood Rally create a new generation of retail crypto investors? A) Yes, they're hungry now B) No, because they can invest in real companies and get the same rush (Thanks, Fed!) C) It's complicated (explain in comments)

June 8th 2020

1 Retweet6 Likes

3) Good for Bitcoin (specifically) - This is the scenario in which the party continues, but rather than just looking to diversify and find alpha, people are getting actively nervous about how absurd the traditional markets are getting and looking for something uncorrelated

4) Mixed for Bitcoin - This is the scenario where the stock party ends. The way it shakes out could be good or bad. The bad would come if people who have exposure to bitcoin get wiped out and need to sell off. The good would be that, depending on what type of crash or correction we see, there would perhaps be a push for more uncorrelated assets and alternative narratives that could benefit bitcoin.


Theme 2: The Fed’s Weird Inequality Denialism

In comments following the FOMC meeting, Fed chair Jerome (again) that Fed policies have no relationship to growing inequality. FinTwit wasn’t having it.

Twitter avatar for @HedgeyeDDaleDarius Dale @HedgeyeDDale
BREAKING: “Inequality has been something that’s been increasingly with us for four decades and it’s not really related to monetary policy.” -Jay Powell, chairman of the @federalreserve Easy stance to take after banking $100mil from the “finance bubble”. 2020 = LTCM on steroids.
Image

June 10th 2020

281 Retweets1,206 Likes

What’s more, other former members of the Fed are skeptical as well. Listen to this discussion about QE and inequality from 2015.

Twitter avatar for @nlwNathaniel Whittemore @nlw
The Federal Reserve keeps saying its policies have had no impact on inequality, and that no one knows why inequality has been increasing. Let's listen, however, to former Fed gov Kevin Warsh speaking about QE & inequality in 2015 Full @BreakdownNLW:
nlwcrypto.libsyn.com/why-the-fed-ke…
Image

June 13th 2020

10 Retweets44 Likes

Interestingly, it increasingly appears that this narrative - or rather, questions around it - is going mainstream. Something to watch.

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