It Happened With Bitcoin And Now It’s Happening With Stocks
Yesterday, the stock market made a muted start, but the tech stocks rallied. All the FAANGM stocks were in the green, led by Amazon and Tesla.
There are two factors behind the rally: the unprecedented stimulus efforts by governments and central bankers and “an overzealous crowd of new traders who are intentionally refuting traditional valuation models largely” thanks to “excessive” stimulus.
In South Korea, retail investors were the force behind 50% of the stock price surge after the March sell-off. Day traders seeking help for gambling addiction have tripled in number in the country.
“We tend to see an influx of people seeking help after a huge market dive,” said Kim Yeon-Su, treatment manager at the Korea Center on Gambling Problems help center in Seoul. “It happened with Bitcoin, and now it's happening with stocks.”
Rich Getting Richer
The shares of e-commerce giant Amazon jumped more than 3.5% after Goldman Sachs hiked its 12-month price target of AMZN to $3,800 per share from $3,000 per share. Currently, AMZN shares are just inches away from its all-time high of 3,200 earlier this month, up 73% this year.
With this, Amazon founder Jeff Bezos added $13 billion to his net worth on Monday, the largest one-day jump for an individual. The world's richest person saw his fortune swell $74 billion in 2020 to nearly $190 billion, despite the US entering its worst downturn since the Great Depression.
Credit Suisse also hiked the price target of Google parent company Alphabet from $1,600 per share to $1,850 per share.
Short-Seller Driving Tesla Rally
Tesla remains the darling of the market. Its stocks shot up 9.5% to a new record 1643. It is now the most valuable car company in the world, and TSLA stocks are worth more than triple the combined value of General Motors and Ford, both of which generated ten times more sales than Tesla last year.
The shares for Tesla could be rising because of the “short squeeze.” This is when you bet against a stock, sell the stock by borrowing a share from your broker, and when the stock goes up, you have to buy it at that increased price. When this happens at a bigger scale and more short sellers get wiped out, the stock price continues to move higher and higher.
In the past year, Tesla stocks have soared 340%, while short interest fell three times, meaning short sellers were forced to buy millions of TSLA shares.
Interestingly, institutional investors that hold 74% of all Tesla shares available to the public bought only 1.8 million TSLA shares in Q4 2019, while short-sellers bought nearly 10 million shares during that time.
In Q1 2020, when Tesla share prices surged 400%, institutional investors offloaded 4.4 million shares while short-sellers bought another 10 million shares.
All Speculation & now no Volatility
The tech stocks are basically “ignoring traditional valuation models,” something digital assets never had, to begin with. As such, “most of their valuation is speculative,” wrote Mati Greenspan in his daily newsletter.
Altcoins that have been surging all this time also seem to be losing their momentum. Today, only small-cap cryptos, between $20k to $75 million market cap, are the ones up 20% to 90%.
Among the top cryptocurrencies, CRO and Litecoin are up over 4%, Zcash 8.44%, OMG 7.05%, and IOTA 6.42%
“Volatility continued to drift lower for all the major assets, and the long volatility trade continued to get crushed,” noted Coin Metrics.
DeFi, which is currently the hottest trend in the market, is not seeing any new money. Unlike the ICO boom of 2017, DeFi is “simply finding new and creative ways to leverage current investments, detracting from so-called “hodl” coins to pump utility tokens” said Greenspan.
“There is a growing realization though that the 2020 DeFi hype may be overdone,” he said.
Bitcoin meanwhile jumped above $9,400 today but remains in its range it has been for the past month. Bitcoin's social engagement, which recently spiked after last week's Twitter hack that promoted BTC giveaway scam, has come down to even below the normal levels.