First Mover: Silver Is the New GameStop as Musk's #Bitcoin Stalls

Bitcoin (BTC) quickly settled back into the past couple weeks' range of between roughly $30,000 and $36,000 after a short-lived price spike Friday when Elon Musk, the electric-vehicle and private-spaceflight entrepreneur who's also reportedly the world's richest person, added "#bitcoin" to his Twitter profile.

"The longer we stay at the current level, the stronger the base to bounce back up," Matt Blom, head of sales and trading for the exchange firm EQUOS, wrote early Monday. Bitcoin prices finished January up 14% on the year.

Last week's Reddit-fueled trading in GameStop (GME) bore uncanny similarities to the fevered, anything-goes trading culture that has long defined cryptocurrencies. The five-fold jump in prices for dogecoin (DOGE) – a blockchain-based token representing little more than a doggie-faced meme – showed some of that retail-trader-driven mania spilling over into digital markets.

During an audio chat late Sunday on the app Clubhouse, Musk said he was a "supporter" of bitcoin and that it's "on the verge of getting broad acceptance by conventional finance people." He added that the "most entertaining and ironic outcome" would be if DOGE became the "currency of earth in the future."

Where will markets go next? The news of India's proposed crypto ban has made some bitcoin investors nervous, CoinDesk's Tanzeel Akhtar reported Saturday. Meanwhile, Chinese traders late last week were already speculating on which cryptocurrencies might be the next to get a major price pump, CoinDesk's Muyao Shen reported.

Prices for the digital token XRP (XRP) have nearly tripled in the past five days. They had fallen 67% in December, when U.S. securities regulators brought charges against Ripple Labs, which uses XRP in its payments network.

In traditional markets on Monday, stocks were higher in Europe and Asia, but the real action was in silver, where prices have climbed 16% over the past three days to about $30 an ounce amid a Reddit-fueled buying frenzy. Gold strengthened 0.9% to $1,860 an ounce.

Market Moves

The "Grayscale premium" is shrinking, and analysts are speculating why.

A growing number of cryptocurrency analysts are watching a steep contraction recently in a closely tracked ratio in the bitcoin market known as the "Grayscale premium."

This premium represents the difference in market prices for bitcoin and the price implied by the Grayscale Bitcoin Trust (GBTC), one of the most popular vehicles for investing in the cryptocurrency via the stock market. (EDITOR'S NOTE: Grayscale Investments, which sponsors GBTC, is a unit of Digital Currency Group, which also owns CoinDesk.)

What's getting attention now is that the Grayscale premium last week fell to as low as 3.5%, from upwards of 40% late last year, according to Ycharts.

Many observers say one explanation for the premium might be the lack of alternatives, especially when the U.S. Securities and Exchange Commission has yet to approve a bitcoin-focused exchange-traded fund in the U.S. When the premium is elevated, it's seen as a sign of just how eager retail stock traders are to bet on bitcoin's price.

So the recent decline might be explained by signs that greater competition is on the way: BlockFi, a major hub for crypto lending, has filed to start a new bitcoin trust, CoinDesk's Danny Nelson reported. According to The Block, Osprey Bitcoin Trust will list on over-the-counter markets in coming days. In Canada, the investment firm Ninepoint Partners completed an initial public offering of a cryptocurrency fund worth a reported C$230 million (US$180 million).

Yet, there may be another factor: Flagging demand for bitcoin with prices over $30,000, double their level just a couple months ago. Some institutional investors who were betting on the price to keep mooning may have lost their nerve, and the premium collapsed as they rushed to exit positions.

"The dissipation of this premium is further evidence of the internal stresses of the markets on bitcoin," Greg Cipolaro, global head of research for NYDIG, a digital-asset investment firm, wrote Friday in a weekly report.

He noted that the gap has also compressed between spot prices for bitcoin and futures contracts traded on the Chicago-based CME – possibly another indication that traders are taking less market risk in the face of heightened volatility.

Bitcoin Watch

"A BTC bull and believer"

The rally triggered by Tesla CEO Elon Musk adding "#bitcoin" to his Twitter profile quickly fizzled, but Su Zhu, CEO of the cryptocurrency investment firm Three Arrows Capital, says that "long term, it's very bullish."

"Elon news is a watershed moment for crypto as the wealthiest man in the world and operator of the world's most successful companies is now a BTC bull and believer," Zhu told CoinDesk in a Telegram chat.

Denis Vinokourov, head of research at the London-based prime brokerage Bequant, expects range-bound trading to continue for a while. He points to healthy market signs, including growth in blockchain-based trading and lending systems of decentralized finance (DeFi). Flow into exchange-traded products remains strong, he said.

"Everyone is looking for catalysts but I don't think any new catalysts per se are required," Vinokourov told CoinDesk.

- Omkar Godbole

Token Watch

CoinDesk 20 Returns in January

Stellar (XLM), the payments token, surged 143% in the first month of the year to dominate the CoinDesk 20 set of digital assets. Ether (ETH), the native cryptocurrency of the Ethereum blockchain, gained 77% on the month. Bitcoin rose 14%.

What's Hot

Crypto industry booms but doesn't quite "Zoom," while Elon Musk gets immortalized on the Bitcoin blockchain.

One of the biggest questions facing the crypto industry over the past year has been whether the companies and their new-tech platforms could "Zoom" – where suddenly everyone starts using the product. Last week showed there's plenty of progress still to be made on that front. The industry groaned under the newfound attention from ready customers, some of them ostensibly fleeing the trading platform Robinhood following a series of anger-inducing trading suspensions. Outages were reported at crypto trading venues including Coinbase, Kraken, Binance and Voyager. New York Department of Financial Services Superintendent Linda Lacewell tweeted that, as the state's virtual-currency regulator, she was "actively monitoring market volatility."

Elon Musk's Twitter account got a hat tip in the form of a message encoded into the Bitcoin blockchain. The phrase, "In retrospect, it was inevitable," was written by a clever bitcoin miner into the record for data block 668197, shortly after the world's richest man updated his profile to include the hashtag #bitcoin.

Analogs

The latest on the economy and traditional finance

The hedge fund Greylock is known for making bets on the government debt of troubled nations like Argentina, Lebanon and Venezuela. Now, according to Bloomberg, Greylock, led by CEO Hans Humes, has filed for bankruptcy protection, apparently seeking the court's help to wriggle out of its own liabilities. The proceedings reportedly will allow Greylock to terminate its $100,000-a-month office lease in Manhattan. (Bloomberg)

Reddit user "DeepF—Value" who helped direct WallStreetBets' campaign is a 34-year-old former insurance marketing executive who has just made $20M from gains on GameStop shares and options. (WSJ)

"Fundamentals have never mattered less" as GameStop saga "makes a mockery of the idea that markets provide an efficient form of capital allocation in the economy," James Mackintosh writes in column. (WSJ)

For public companies, there are benefits to having no supply caps: Data show a rise in "shelf" registrations for potential securities sales, as CEO prepare to take advantage of buoyant market conditions. (WSJ)