Cryptocurrencies

In terms of entertainment value, the return of vigilante investor Roaring Kitty was a highlight.

In terms of entertainment value, the return of vigilante investor Roaring Kitty has been one of the highlights of the year so far. However, the massive volatility and questionable trading caused by this crisis is nothing to cheer about – in fact, it is a worrying sign.

Kitty, real name Keith Gill, came out of retirement on May 13, delighting keyboard warriors everywhere and sparking a 180% surge in GameStop shares from $17.46 to $48.75 at the end of trading on May 14.

A few days later, on May 17, the company announced that it had sold 45 million shares, capitalizing on that pump to raise nearly $1 billion for the treasury. Meanwhile, preliminary results forecast losses of between $27 million and $37 million for the previous quarter.

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Unsurprisingly, GME stock fell more than 30% on the news – and that drop was only limited by the company’s decision to announce it on Friday (unlike cryptocurrencies, stock markets are closed the weekend, so Friday is the best day to announce… bad news). The following week, shares continued to bleed until reaching a low of $18.32 on May 23, with some recovery at the end of the month (Source: Google Finance).

Then, on June 6, our feline friend announced a live stream for the next day – Friday, June 7. This sent shares soaring 80%, from $26.50 to over $46, with screenshots of Jill’s portfolio revealing GME shares totaling $586 million and some 120,000 call options at short term with a strike price of $20.

During the live stream, which opened with a video of kittens playing, Gill, wearing a bandana and sunglasses, expressed confidence in the leadership of Ryan Cohen and his “team.” Meanwhile, hedge funds like Citron Research – which suffered a 100% loss on a short position in GameStop during the first Kitty campaign of 2021 and announced last month that they were selling their shares again – have called this operation of “insulting the capital markets”.

While all this was happening, Cohen and his team were pushing for quarterly results to be released three days earlier (and on a Friday), instead of the following Tuesday as previously announced.

These results showed a first quarter loss of more than $32 million, or $0.12 per share versus an expected $0.09. They also announced another stock sale that netted GameStop over $2 billion in cash thanks to the huge price surge sparked by the Kitty live stream announcement.

Unsurprisingly, shares fell more than 50% because of the report, with extreme volatility forcing the New York Stock Exchange to suspend trading 38 times after Jill sparked a buying frenzy.

Two days later, on June 9, our favorite meme posted a still image from a Batman movie on his X profile, with a cat’s head replacing the mask the Joker wears before robbing the bank. We might imagine that Cohen, meanwhile, is carefully amassing a sum of $3 billion that will stop the game during the nuclear winter.

While this is all great fun – and we all love the Robin Hood character who steals from hedge funds to feed debt-ridden college graduates – this market manipulation is extremely dangerous.

In fact, questions should be asked, and they are. On June 4, the Massachusetts regulator announced that it would investigate Mr. Kitty and his GameStop transactions, many of which coincided with the price volatility caused by his activity – which the GameStop business closely tracked. It’s actually interesting to note that Jill’s common inventory has almost doubled since June 7, while her options have dried up.

In the world of cryptocurrencies, we are used to these kinds of big mistakes; However, in the world of TradFi, similar events are sometimes referred to as market manipulation, insider trading, or fraud.

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It is normal for coins to rise and fall daily based on the levels of Gatorade consumed by their creators, as losses incurred here are relatively minimal. In fact, with a market cap of $45 billion, the entire memecoin sector doesn’t even represent 1.5% of Microsoft’s market cap.

But as GME’s failure shows, imitating stock markets is a more worrying trend. As analysts have noted, the behavior of this company and its shareholders is crazy: you don’t sell shares if you think they are undervalued, and you don’t buy them if the company is bleeding money. ‘money.

Although no one sheds a tear for the losses suffered by hedge funds, the volatility caused by kitten worship is devastating, as evidenced by the need for the New York Stock Exchange to repeatedly halt trading due to the frequent volatility. In fact, such is the risk to the markets that the ironically named investment platform Robinhood has suspended its accounts during the craziness of 2021. Morgan Stanley is also reportedly considering canceling an account from its MS E-Trade platform. Which I spotted in one of Gill’s screenshots (GameStop shares fell 5% on the news).

Whatever you think about restricting market access – and frankly, I admit it’s a bit strange – the rise of YouTube cryptocurrency influencers in the real world is not a development positive. Those who get into Dogecoin make their own bed to lie on, but when traders like Keith Gill can fill enough YOLOs using a Charles Schwab account to disrupt the real stock market, I’m certainly not sleeping soundly.

Many will point to the fact that the SEC offered Bupkis when it investigated the first wave of GME-inspired stock trades in 2021 and may offer Bupkis again. If I were Mr. Kitty, I’d be a little nervous. If I were a multi-billion dollar hedge fund, or Morgan Stanley, I would be bothered enough to raise this point.

Lucas Kelly He is Chief Investment Officer at Yield App, where he oversees portfolio allocations and leads the expansion of its diversified portfolio of investment products. He was previously chief investment officer at Diginex Asset Management, as well as senior trader and managing director at Credit Suisse in Hong Kong, where he led QIS and structured derivatives trading. He was also head of exotic derivatives at UBS in Australia.

This article is intended for general information purposes and is not intended and should not be relied upon as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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