David Einhorn, President of Greenlight Capital, speaks at the 14th Annual CNBC Delivery Alpha Investor Summit in New York City on November 13, 2024.
Adam Jeffrey | CNBC
David Einhorn of Greenlight Capital believes speculative behavior in the current bull market has reached levels that are beyond common sense.
“We have reached the ‘fatcoin’ stage of the market cycle,” Einhorn said in a letter to investors obtained by CNBC. “It has no clear purpose other than trading and speculation, and it does not satisfy a need that is not served elsewhere.”
As Donald Trump’s re-election sends a storm of animal spirits on Main Street, a crypto token called “fatcoin” has exploded in popularity. Memecoin is currently approaching a market value of $2 billion, more than many U.S.-listed companies.
Since fartcoin’s inception, many more meme coins have appeared. President Donald Trump launched $TRUMP, a meme coin built on the Solana platform. The market capitalization at the end of the week exceeded $14 billion. The coin fell more than 20% at one point in the past 24 hours, but has since cut its losses to around 3%. President Trump’s wife Melania also unveiled the coin.
“There is nothing stopping us from launching more tradable coins,” Einhorn said. “Perhaps we are leaving the fatcoin phase of the market and entering the Trump (and Melania) memecoin phase. What will happen next is anyone’s guess, but it looks like it’s going to be crazy.” I feel like that.”
Einhorn’s letter comes as investors are pumping up stock prices, buoyed by hopes of tax cuts and deregulation from the second Trump administration. On Tuesday, the day after the inauguration, the Dow Jones Industrial Average rose more than 400 points. The S&P 500 and Nasdaq Composite rose 0.8% and 0.7%, respectively.
Short selling leveraged Bitcoin ETFs
Greenlight capitalized on the enthusiasm surrounding cryptocurrencies in the fourth quarter, indirectly betting on several popular ETFs related to Bitcoin.
The two funds the firm focused on were T-Rex 2X Long MSTR Daily Target ETF (MSTU) and Defiance Daily Target 2X Long MSTR ETF (MSTX). These funds are using derivatives to try to double the daily profits of MicroStrategy, a software company that recently turned into a Bitcoin financial vehicle.
The fund has struggled at times to meet its goals due to MicroStrategy’s volatility and the low supply of derivatives, which are most easily used to generate leveraged returns.
According to the letter, Greenlight took short positions in these funds during the quarter, which were partially offset by “substantial winners” from arbitrage holdings in MicroStrategy stock. It is said that
