The rotation from bitcoin into ether could point to a 2017-style correction in the crypto market, research firm says

  • The surge in prices for cryptocurrencies this year “has a whiff of deja vu”, reminiscent of bitcoin’s rally in 2017, said Vanda Research on Monday.
  • Bitcoin’s rally four years ago was followed by a correction and a jump in interest in then-lesser known cryptocurrencies like Ether.
  • Bitcoin and Dogecoin have slumped after hitting all-time highs this year.
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Prices for Bitcoin and other cryptocurrencies have boomed this year, in part on growing acceptance of digital assets by Wall Street and corporate America, but a broader correction in the market appears to be brewing and it’s reminiscent of bitcoin’s slide in 2017, one research firm said Monday.

Bitcoin so far in 2021 pushed above $1 trillion in market capitalization and hit an all-time high of $64,804.72 on April 14, the same day that Coinbase, the largest cryptocurrency exchange in the US, began trading as a public company. Dogecoin last week surged to a record high of over $0.73, according to CoinGecko, and ether, the token tied to the Ethereum blockchain, on Monday notched a record high of $4,221.20. Bitcoin and ether are the two largest cryptocurrencies by market capitalization.

“The meteoric rise in cryptocurrencies has a whiff of deja vu,” to bitcoin’s move in 2017 when a months-long rally catapulted it to become the best-performing crypto asset, said Vanda Research, which tracks retail investing activity, in a note Monday.

“When the rally started to look tired in November [2017], investors rotated to lesser-known altcoins like Ripple and Ethereum, which quickly became household names, too,” wrote Ben Onatibia, head of markets at Vanda Research. Ripple then peaked in early January 2018 while Ethereum held to its gains until mid-to-late January of that year, he said.

“In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit,” he said.

Now, the crypto market is in the midst of “precisely the same hot potato game,” that took place four years ago.

“Under the pretext of institutional support, retail investors started rotating out of speculative retail stocks and pouring their money into Bitcoin,” Vanda Research said in its note. Following the most recent peak, retail buyers have flocked to dogecoin and ether, echoing what transpired in 2017.

Read more: A 29-year-old crypto billionaire who’s made millions from digital-currency arbitrage shares 2 tips for investors looking to get started in trading- and explains why ether is unlikely to surpass bitcoin

Bitcoin’s jump this year has been supported as more big firms have stepped up their activity into the crypto market. Electric vehicle maker Tesla in February said it invested $1.5 billion in bitcoin and CEO Elon Musk said it would start accepting bitcoin as payment for its cars. Meanwhile, Goldman Sachs has formed a new cryptocurrency trading desk and PayPal started allowing US consumers to use their cryptocurrency holdings to pay at millions of its online merchants.

But Bitcoin has dropped 13% since its all-time high less than one month ago, trading below $57,000 on Monday. Dogecoin has tumbled 34% since last week’s high, slumping below $0.50 on Monday after dogecoin enthusiast Musk talked about the meme token during his gig hosting “Saturday Night Live” over the weekend.

“Despite Elon Musks’ attempt to boost Dogecoin this weekend … it has failed to climb back to year-to-date highs. If and when Ethereum suffers the same fate, the cryptocurrencies will likely face a wave of redemptions,” said Onatibia. He noted that Musk’s SpaceX satellite company has said it will accept the meme cryptocurrency as payment for the company’s mission to the moon in 2022.

“Indeed, open interest data from different crypto exchanges shows that there has been a rotation from Bitcoin to Ethereum since the Coinbase IPO. We think a correction in crypto would push retail investors back into equities, where some of their favorite stocks are now trading at a significant discount vis a vis the February highs,” said Vanda Research.

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GameStop has fallen nearly 50% from March intraday highs, but ‘diamond hands’ Reddit traders are still holding

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Day traders piled into GameStop stock in January, alerting Wall Street to the power of amateur investors

GameStop stock has fallen nearly 50% from March 10 intraday highs of $348.40, but that hasn’t stopped Reddit traders from holding the stock.

Traders on the popular r/wallstreetbets forum are doubling down their bets on the beleaguered video game retailer despite falling short interest and share prices.

GameStop stock was down as much as 20% on Tuesday before it mounted a recovery. Short interest in the stock has dropped to just 15.77% of its float as of March 16, according to data from Ihor Dusaniwsky of S3 Partners.

Even in face of the bearish news, Reddit traders continued to comment about their “diamond hands” on the GameStop thread of r/wallstreetbets for Tuesday, March 16, referring to investors who hold a stock or cryptocurrency regardless of potential risks, headwinds, or losses. The term is used to represent a group of retail traders’ collective strength in the markets if they act in unison.

A Reddit user going by the name u/darkspherei commented on the March 16 GameStop thread, “upvote if you ain’t selling 💎🙌🦍🚀,” and quickly received nearly 3,000 upvotes.

The online community is attempting to band together once again to “defend” GameStop.

Another commenter on the site going by u/_exordium argued the forum can create a repeat of February’s rise in prices if they band together.

“Don’t forget, in January once it tanked, we all quieted down for a while, but we never f—-‘ left and we never f—-‘ sold. When this place is overrun by FUD and shills, we wait…Hang the f— in there,” u_exordium said.

Despite the rallying cries, and the recent appointment of Chewy co-founder Ryan Cohen to lead a digital shift at the company, shares of GameStop traded down 10.79% as of 11:44 a.m. ET on Tuesday.

GME Chart 1
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GameStop, AMC, and other Reddit favorites climb as day traders look to reignite momentum

GameStop Clerk
A customer laughs with a clerk as he purchases a copy of the video game “Grand Theft Auto IV” at a GameStop store in New York

  • GameStop, AMC, and other Reddit-favorite stocks gained on Monday as day traders aimed to spark rallies similar to those seen in January.
  • The group of previously unloved stocks has fluctuated in recent sessions as bullish momentum locks horns with profit-taking.
  • The day traders lack the element of surprise they enjoyed earlier in the year, and regulators are investigating whether Reddit posts fueling the previous surges constituted manipulation.
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GameStop, AMC Entertainment, and other so-called meme stocks gained on Monday as retail investors looked to fuel new rallies.

The video-game retailer rose as much as 10.1%. AMC climbed 13.7%. BlackBerry and Express swung 5.2% and 7.4% higher, respectively.

The stocks have traded with elevated volatility in recent sessions as day traders congregating online try to repeat the surges seen at the start of the year. Recent posts on r/wallstreetbets and other trading forums praising the upswing garnered thousands of comments and votes of approval. And while the companies trade well below their January highs, they still boast huge year-to-date gains.

The gains follow broad selling across the Reddit favorites. The stocks tumbled in Friday trading after rising the session prior, underscoring the back-and-forth action seen since January’s extraordinary rallies.

Retail investors looking to lift prices again face a tougher challenge. The Reddit-savvy traders had the element of surprise when they first bid up shares, and their ability to shock the market establishment quickly publicized the trade. The stocks’ unusually high short interest also exacerbated the rallies as bearish investors had to buy shares to cover their souring bets.

Those surges are old news now, and Wall Street has caught on to the Reddit traders’ antics. Hedge funds started tracking posts on relevant forums to monitor which stocks day traders could target next.

Separately, regulators are looking into the January price action to determine its legality. While the Reddit crowd has repeatedly indicated they simply “like the stock,” those warier of the sudden climbs suggest the online communication could qualify as market manipulation. 

A new report suggests bots also played a significant role in driving hype around the trade. Fake accounts on major social media platforms amplified calls to buy and hold shares of GameStop and other relevant stocks, Reuters reported, citing analysis by cybersecurity company PiiQ Media. Still, it’s unclear how much of an impact the bots had on the rallies.

Lawmakers have already taken steps to better understand the market phenomenon. The House Financial Services Committee held a hearing in February on the matter, and the Senate Banking Committee is poised to do so. 

GameStop closed at $101.74 per share on Friday, up about 428% year-to-date.

AMC closed at $8.01, up 270% year-to-date.

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GameStop short-sellers have lost $1.9 billion in just 2 days amid the stock’s latest spike

GameStop
  • Short sellers lost $664 million on Wednesday as GameStop shares spiked 104% in the final 30 minutes of trading, S3 Partners said.
  • The stock’s 84% intraday gain on Thursday fueled another $1.19 billion in mark-to-market losses.
  • Reddit traders revived the GameStop rally this week on new hopes the company can reinvent itself.
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Nearly one month after GameStop’s leap to record highs, Reddit traders are boosting the meme stock all over again. And just like in the January rally, short-sellers are hurting big.

Investors selling GameStop short – betting the stock price would decline – posted $664 million in mark-to-market losses as shares of the gaming retailer rocketed 104% into the close, according to financial analytics firm S3 Partners. The stock’s 84% intraday gain fueled another $1.19 billion in losses, bringing the two-day total to more than $1.85 billion.

To be sure, the losses pale in comparison to those fueled by the January surge. GameStop shorts are down $10.75 billion year-to-date on their bearish bets, according to S3. The sum includes Thursday’s intraday rally.

GameStop first spiked higher last month as day traders uniting in online forums like the Wall Street Bets subreddit scooped up shares in hopes of driving a massive short squeeze. Such a technique involves driving shares high enough to force short-sellers to cover their own positions by buying the stock. Short-seller purchases further lift prices and form an upward spiral for the stock.

The Reddit-trader phenomenon faded through February as widespread selling pulled shares from their extremely elevated levels. Yet a last-minute rally on Wednesday reignited the buying frenzy and prompted new calls on Wall Street Bets to drive a new short squeeze.

It’s unlikely such a squeeze prompted the stock’s latest tear, Ihor Dusaniwsky, managing director of predictive analytics at S3, told Insider in an email.

“While there were some buy-to-covers brought about by the large mark-to-market losses, they were offset by new short sellers looking for a pullback from this volatile price move,” he said.

The shorts are holding their ground, too. The number of GameStop shares shorted over the past week rose by 1.97 million, marking an increase of 15%.

Short interest in the stock is $1.42 billion, or 28.4% of the company’s tradeable shares. While still a large sum, that’s down significantly from the nearly 140% short interest seen earlier in 2021.

The number of shares sold short can decline even further if GameStop’s stock price holds, Dusaniwsky said. Losses are already big enough to concern bearish investors, and another rally could be what breaks their resolve, he added. 

“Many shorts are teetering on the edge of being squeezed out and a move back towards January’s high will certainly push many more shorts over the cliff,” Dusaniwsky said.

GameStop traded at $148.47 as of 3 p.m. ET Thursday, up 660% year-to-date.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

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GameStop and other meme stocks rebound after sharp sell-off as Reddit traders ‘hold the line’

GameStop
  • GameStop, AMC, and other retail-trader favorites rebounded on Wednesday as the Reddit-fueled rally regained steam.
  • The rally comes a day after a cohort of highly volatile stocks plummeted as investors secured profits and minimized losses.
  • The day-trader crowd now stands at a crossroads: repeat recent weeks’ wild rallies or cash out.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

GameStop, AMC Entertainment, and other Reddit darlings rebounded on Wednesday as retail investors banded together to “hold the line.” The phrase has become a popular rallying cry on the Wall Street Bets subreddit amongst day traders hoping to preserve recent gains.

The rally comes after the group of highly shorted stocks plunged on Tuesday as investors looked to secure gains or minimize losses, including a 60% single-day drop for GameStop.

The investors are now at a crossroads. They can either try again at bidding the names higher or run for the exit.

Trading on Wednesday suggests the coordination that powered last week’s climb is wavering. GameStop rose as much as 26% in early trading, while AMC gained as much as 14%. BlackBerry climbed 4% at intraday highs, while Nokia and Bed Bath & Beyond posted similarly modest gains. 

Read more: Buy these 26 heavily shorted stocks as retail traders trigger wild rallies in Wall Street’s least liked names, Wells Fargo says

More seasoned investors warned repeatedly that, while some day traders could mint small fortunes through the Reddit-fueled surge, many who entered the trade late stand to lose big. The parabolic nature of the stocks’ rally also lends itself to a similarly steep crash as profit-taking spurs others to sell out of concern that they’ll be the last ones holding their shares.

It’s possible the retail investors were encouraged by the easing of trading restrictions by Robinhood and other broker dealers. Several trading platforms temporarily blocked investors from buying shares of GameStop, AMC, and other highly volatile stocks last week, citing attempts to protect clients from unprecedented market risk.

Those policies have since been somewhat reversed, allowing the army of day traders to continue buying at least some shares this week.

To be sure, GameStop and most of the other so-called meme stocks still trade well above where they sat at the start of the year. Some companies even used the phenomenon to their advantage. AMC paid down debts and sold stock at extraordinary highs to extend its cash runway. Just weeks after warning the company could go bankrupt, it leveraged the retail-trader frenzy to stay afloat.

“The sun is shining on AMC,” CEO Adam Aron said in a January 25 statement, adding any talk of imminent bankruptcy is “completely off the table.”

GameStop closed at $90 on Tuesday, up 367% year-to-date.

AMC closed at $7.82, up 262% year-to-date.

Read more: The GameStop mania driven by Reddit traders isn’t simple market trolling. It’s a populist movement threatening to disrupt the financial system to a degree Occupy Wall Street only dreamed of.

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