Crypto Treasury Ponzi

Financial nihilism seems to have reached a permanently high plateau.  In 2020 and 2021, it was the endless wave of SPACs allowing grifters like Chamath to get huge chunks of equity for taking two bit companies public to sell to unsuspecting investors.   The trillions in Covid stimulus effectively went from the government money printer to the grifters and corporate insiders who sold stock to the public.  Then there was payback in 2022 for all the printed money chasing the same number of goods and services.  High inflation, higher rates, and a much less forgiving bond market.  

Those side effects linger, but the speculative fire remains.  The liquidity is no longer as flush as 2021, but it still flows in the form of massive fiscal deficits, although without the money printing coming from the Fed.  Thus, bond yields remain high, the real estate market remains soft, and small caps lose out to large caps.  Outside of the oligopolies and anointed large caps, earnings growth is stagnant.  Private equity has picked over every non-listed corporation with a fine toothed comb, and are running out of businesses to buy.  Leveraged buyouts don't work as well with 10 yr yields at 4.5% than when there was ZIRP and 10 yr yields traded with a 1 handle.   The real economy is definitely slowing.

So when investing in real businesses don't work anymore, but the SPX keeps hitting new all time highs, there is a simple solution for the investment banks and the grifters.  Profit off selling stocks.  In 2020 and 2021, SPACs were the vehicle to suck up investor capital.  In 2025, its crypto treasury companies sucking up capital through PIPEs: buying BTC, ETH, SOL, etc. and then selling more stock through ATMs to buy more cryptos.  Money is now flowing into stocks, which then goes into cryptos.  Crypto treasuries are now the vehicle sucking up dumb money.  In order to be able to sell as much stock as possible through ATMs, lots of famous, and promotional finance figureheads are used to increase liquidity and the amount able to be sold thorough these ATM offerings.  

Theoretically, selling overvalued stock to buy cryptos allow for the book value of the stock to rise at the expense of the sheep buying the overvalued stock, who are of course hoping to sell at a higher price to the greater fool.  Its also a Ponzi scheme.  The earliest investors, the ones who get in on the PIPE, get in at the lowest price.  Then,  wild, greedy speculators chase the price higher after the PR announcement, allowing the crypto treasury company to sell bloated, overvalued shares to buy the crypto asset that they are linked to, increasing the price of their stock which is linked to the asset that they buy.  Into the strength and liquidity provided by the late comer speculators, the initial investors can cash out a fat profit.  

It works as long as you get a steady flow of greedy speculators willing to buy overvalued stock, which creates a steady buy demand for cryptos.  When the demand drops, the realities of all that supply sold to the public will then weigh on the stock price, which makes it harder to sell enough stock without crushing the stock price to below mNAV.  Without selling stock, there is no more money to buy cryptos, chopping off one of the big sources of demand.   And this scheme only works when you have the greater fool willing to pay above mNAV for these crypto ponzis.  When those fools run out, then there is no ability to pump up the price of cryptos with capital coming from the greater fools.  Then the price of cryptos collapses, as well as the crypto treasury stocks.  Who knows when we get to that point, but it doesn't feel that far away.  This kind of hot and heavy speculation doesn't last for long.  I suspect the floor on this will fall fast and hard, as the underlying asset has no real value other than for speculation.

The speculative mania has lifted a lot of boats in July, as you are seeing big moves higher in nonprofitable tech stocks, with the corresponding large call speculation.  

The last time you saw this kind of call buying frenzy in low profit, highly speculative stocks was in December 2024, and before that, February 2021.  Unlike February 2021, you don't have several trillion in helicopter money in the form of Covid stimulus being dropped on the heads of everyone in a developed country.  

The difference between December and now is that you've had a lot more time for retail investors to load up on these speculative stocks, making these markets that much more saturated with retail money.  The thing about retail money is that its a much more fickle source of  capital flows vs institutions.  A large population of retail investors are in stocks to get rich quick, thus the demand for the highest beta, most speculative stocks.  20%/year, what the SPX has delivered for the last couple of years, is not enough.  They want more.  Fundamentals are an afterthought.  Its all about what's hot, trending, and meme worthy that can lead to fast moves higher.  

Listening to finance and investing podcasts, its clear that the zeitgeist of the moment is huge fiscal deficits leading to dollar debasement.  This is the rationale to overpay for US stocks.  Not much talk about tariffs anymore.  And when tariffs are brought up, its no big deal, because of TACO.  The complacency is real.  The herd has gotten super greedy, going beyond bitcoin, to the more speculative ethereum and other alt coins.  This rampant buying in crypto has been rationalized by laws passed in Congress that are favorable for crypto.  The value of crypto currencies are in the eye of the beholder.  There is no cash flow, no fundamental need for it.  Unlike gold, it has no secondary uses like jewelry.  There is a short history and the "brand" has not stood the test of time like gold.  But it has a lot of buzz, and hype behind it.  Its the symbolic asset of this era.  

Unlike AI, which has to eventually prove itself by providing value beyond the cost of capex, bitcoin has nothing to prove because it doesn't promise anything, or provide anything of value.  Bitcoin and cryptos just exist, for speculation, and for theoretically providing a store of value against dollar debasement.  That's a low bar to climb over.  Lots of assets provide a store of value against dollar debasement, which actually have real world value.  The most obvious one is real estate.  Its funny how so many people are negative on the US real estate market, yet positive on cryptocurrencies.  Aren't they both theoretical hedges against dollar debasement?  Of course, one asset hardly trades, and is no longer in the good graces of the get rich hucksters out there.  While the other trades 24 hours, with lots of volume and lots of get rich quick hucksters.  Its like we're back in 1999, when beanie babies were the hot alternative investment.  Or 2021, when NFTs were hyped up.  

On a different note, recently, Morgan Stanley's Mike Wilson, who was bearish most of the time from 2021 to 2024, finally became bullish on the market in the past few months.   After a nearly 1000% move higher in SPX since March 2009, saying this looks like a new bull market?  LOL.  The guy who used to always talk about high valuations and P/E ratios no longer mentions them, when they are even higher now.  When analysts with a bearish lean like Wilson are suddenly bulls, its a sign that most bears have been slaughtered, or just thrown in the towel.  

Last week, I put on index shorts as well as shorts on some speculative stocks which have squeezed higher.  The speculative call activity and overextended market is setting the market up for a 5% pullback.  Looking for the pullback in the next 1-2 weeks, ahead of a potential negative catalyst on August 1 from tariff announcements, as well as weaker seasonal tendencies.  With this amount of wild speculation, it takes a few weeks to cool off, for dip buyers to get satiated.  So not expecting a sharp drop here.   But a pullback in the coming weeks would set up the market for a final move higher which would then probably top out in September, and lead to a bigger correction and possibly the start of a bear market in the fall.