David Einhorn, Chairman of Greenlight Capital, speaks at the 14th CNBC Delivery Alpha Investor Summit in New York on November 13, 2024.
Adam Jeffery | CNBC
David Einhorn of Greenlight Capital believes that speculative behavior in the current bull market has risen to a level that goes beyond common sense.
“We have reached the ‘Fartcoin’ phase of the market cycle,” Einhorn wrote in an investor letter obtained by CNBC. “Except for trading and speculation, it serves no other obvious purpose and fulfills no need not met elsewhere.”
A crypto token called “fartcoin” exploded in popularity when the re-election of Donald Trump unleashed a storm of animal spirits on Main Street. The meme coin is now approaching a market cap of $2 billion, outpacing many US-listed companies.
Since the inception of fartcoin, multiple meme coins have emerged. President Donald Trump launched $TRUMP, a meme coin built on the Solana platform. Its market capitalization increased over the weekend over 14 billion dollars. The coin fell more than 20% at one point over the past 24 hours, but has since pared its losses to around 3%. Trump’s wife, Melania, too exposed coin.
“There is nothing stopping the launch of many more tradable coins,” Einhorn said. “We may be leaving the Fartcoin phase of the market and entering the Trump (and Melania) memecoin phase. It’s anyone’s guess what happens next, but it looks like it’s going to be wild.”
Einhorn’s letter comes as investors boost stocks, buoyed by expectations of lower taxes and deregulation under the second Trump administration. On Tuesday, the day after the inauguration, Dow Jones Industrial Average collected more than 400 points. The S&P 500 and Nasdaq Composite rose by 0.8% and 0.7%, respectively.
Shorting leveraged bitcoin ETFs
Greenlight took advantage of the crypto frenzy during the fourth quarter by betting against some popular ETFs that are indirectly linked to bitcoin.
The two funds the firm focused on were the T-Rex 2X Long MSTR Daily Target ETF (MSTU) and the Defiance Daily Target 2X Long MSTR ETF (MSTX). These funds use derivatives to try to achieve double the daily return of micro strategy, a software company that has turned into a bitcoin treasury vehicle in recent years.
Funds have struggled to achieve that goal at times due to MicroStrategy’s volatility and the small supply of derivatives that are most easily used to generate leveraged returns.
The letter said Greenlight took short positions against those funds during the quarter, partially offset by holding MicroStrategy stock in an arbitrage trade that was a “significant winner.”
