I still have no idea what crypto is.

Title is only partially facetious. If you took my recommendations on uranium and guns last Saturday, congratulations! You minted some coin, unless of course you got greedy and decided to hold it. I still had as of Friday one solitary call option left in $DNN that expired worthless, as is tradition.

I’m going to change up the format of this newsletter slightly, mostly due to regulatory concerns. If you haven’t heard, I’m working with a few others to start a quantitative research firm called Salience Capital, which will be my project this weekend to build a non-placeholder site. That said, it’s probably a bad idea to name low float stocks by name, even if I disclosure any and all positions I may have in them. To keep things kosher, I’ll instead just continue to point out sectoral trends, and perhaps some good ways to scout for tickers, versus actually naming companies outright.

Quick thread on Twitter about buying garbage.

In general, for playing the hype wave I prefer a few strategies for sorting tickers:

1. Optionable-This is especially key if you can get in early enough to ride the initial wave. Optionable tickers are much more juicy in terms of risk:reward than non-optionable tickers, simply because they tend to get gamma squeezed and move extremely rapidly. The absolute golden goose of the memetic turkey is a low-float, low-priced, optionable ticker (precisely $DNN, for example in the uranium craze) because those are prone to rapid, hilarious movements.

2. Low float-Low float tickers are very nice because of the general market illiquidity on them. In this case, when you buy a low float ticker you can yourself substantially move the price, and this is reinforced by thousands of idiots/speculators trying to go through the same doorway at once to chase the hype.

3. Pure plays/garbage-I just wrote a small thread on Twitter about this, but in general for meme/hype plays you want to play distressed or highly speculative equities. This is because they tend to move much more/reflexively compared to a stable counterpart (e.g. $AAL vs $SAVE, $MRNA vs $PFE) and tend to have much higher risk:reward ratios (especially if they’re at the penny or near-penny level).

That said, I could talk for an hour about this topic. In fact, if you want to hear my talk for an hour on this topic, please consider giving to the charity drive I’m running this weekend with Unusual Whales, and if you donate enough and send me screenshots I’ll set up a private Zoom (with the top 10 participants) and we can discuss the finer points of buying market crap.

Time is a Flat Circle

I keep repeating this cryptically on Twitter, mostly because I’m not very creative and also it’s fun to pretend I’m a wise zen master and not a veritable shitposter. That said, it rings very true for memes. We can observe that most meme stocks tend to rise and fall in waves, and are emblematic of the trends as they shift through time. This can be seen over and over and over again.

At the end of the day, very few of these acts last one round. Of course there’s usually one peak, as we’re seeing in the Gamestop phenomenon. Tilray for instance never reclaimed its former heights in 2018, but no one can claim it didn’t make an honest attempt. My hunch—again with no data—is that buying “dead memes”—stable enough (e.g. not penny stock level like DNN) companies that have previously been meme’d—has a positive expected value for buying and holding. Bagholders make the best hype disseminators after all.

State of the Market Memes

Gang Weed—Tilray and its cohort made another run at the crown this week, only to be met with a sharp swat down back to the $20s. This is actually still probably overvaluing Tilray and Aphria, but we’re in a narrative focused market. Sundial settled into the mid-$1 range from its heights in the $3s. Looks like Gang Weed is paused, but again, time is a flat circle here. My full expectation is we will blaze it again, probably pretty quickly in 2020.

Gamma Gang-The uranium stocks faired nicely overall, but lost a ton of momentum as the week dragged long. $URA, the Uranium ETF, hit intraday highs of around $20, which is a lot for a mineral. $DNN, the centroid of the gamma gang wave, made an honest run for $2, but was swatted back down into reality by the ticking clock of theta and charm. I wouldn’t count it fully out yet, but we’re looking for another catalyst or Burry tweet. The interesting aspect of the $DNN saga is the structure of its options chain—it only had monthlies. As I’ve mentioned before, monthlies do not hit right. Similar, the lowest option on $DNN was $2.5, which had insanely high gamma last Friday. If we had made it over the $2.50 mark, this may be a different story. Once we failed to breach or even hit near that, it was over.

2A Boogaloo-It seems the 2A meme for this week fizzled as the week went on, but unlike general memes this seems to be an emblematic fear of Biden’s presidency. I could see the stocks hammered if and only if substantial gun control legislation is passed, but otherwise I do expect stocks like Ruger, Smith & Wesson, and Vista Outdoors to benefit heavily from the gun owner anxiety of the blue wave, similar to how they performed during Obama’s presidency.

Crypto

I am going to be clear. I loathe the concept of crypto, but at the end of the day we’re all in the market to make money, not debate about the finer points of what makes a bubble. Unless you’ve been under a rock since about late 2019, you’ve seen Bitcoin’s meteoric rise from the low $5000s (at the nadir of the COVID-19 crash) to a current eye-watering price of $57,000 per coin today. It’s truly insane, but also who cares. If you trade hype you’re not worried about such ephemeral concerns like value or fundamentals. My only advice is to be deft on your toes when playing the memes, because when they fall they fall hard. You will not have much warning, and when bubbles pop you have Curly, Moe and Larry all rushing for the same exit as you.

Stepping away from the pulpit, the more interesting play to note here is the correlation between Bitcoin and semantically-affiliated Bitcoin garbage. As I’ve said before, I do not think any of these are good companies, and a heavy caveat emptor should be noted before buying any of them. That said, what’s interesting to note is that even though buying Bitcoin would’ve netted you about an 11x return since the March crash, that return is truly dwarfed by playing L1 companies (miners, for example). Marathon Patent Group, for instance, is up over 80x since the March crash.

Riot Blockchain is up a fairly similar amount.

What’s interesting to note here is the reflexivity of it. When Bitcoin falls, its associated semantic network, especially the L1, falls harder. When Bitcoin rises, its semantic network rises harder. By taking advantage of this inefficiency, a Bitcoin bull or bear can speculate or hedge positions much more easily than dipping into the highly volatile, wild-west markets of the crypto exchanges.

For now, unfortunately, I am bullish on Bitcoin, simply due to inflationary monetary policy pursued by the US at the moment. I think it has pretty unparalleled momentum, and although eventually it will crash as all these trivialities do, it’s not worth shorting nor is it worth fighting. I have small positions at time of writing in ARBKF (Argo Blockchain) and EBON (Ebang International Holdings).

Ciao for now.

• Lily