The “Virus Tech Momentum Index ETF” that Stole the Focus and Flows from BTC

Anyone watching (or trading) US equity markets might have noticed some (lets call it) optimistic price action in certain stocks, such as (but not limited to) AAPL, AMZN, PTON, ZM, and of course TSLA. Keen observers will also have noticed 9984 Softbank also ripping through new record highs.

At the same time, these stocks tend to sell off together – and I mean specifically these stocks -3% to -10% or more intraday, while the broader market is positive.

Its as if there’s some “Virus Immunity Tech Momentum ETF” out there, lumping in/outflows into one basket of select securities which move up and down in tandem. Well, there is: the individual retail investor.

Obviously I’m not literally saying that retail investors have ventured together and created an SEC approved listed ETF.

NOR DO I MEAN “ROBINHOOD RETAIL” ONLY – its so incredible how simple minded people are when equating millennials on this notion of “Robinhood = ALL US RETAIL FLOW.”

*Side rant* See Q2 earnings from TD Ameritrade and Interactive Brokers just reported at time of this writing- TDAM new accounts EXCEEDED Q1’s record, daily trading volume +62% Q0Q and 4x YoY. ETRADE, SCHWAB will report similar. Fidelity, Vanguard, Merrill seeing more flows, more new accounts, more new assets added, and more growth in asset values as prices rise – so, yeah. “Robinhood only.” -no apologies for the rant, you’re welcome for the facts).

The full search term trend that’s cut off is “(insert broker) LOGIN” – so “ETRADE login,” “TD Ameritrade login” etc. When you’re google searching the login page, it means you have an existing account but haven’t logged in in some time. Robinhood traders are active (or actively checking) all day, every day- few millennials google search logging into RH as they’re auto-logged in. The additional retail flows that came in during the initial sell off was not simply “Robinhood millennials.” Schwab average account size is $200k.
The sentiment reader that proved to be dead accurate. This was observed from May 13 looking back 90 days, with a market sell off during. Those who google if now is a good time to buy are bullish, just need some confirmation bias. Those who search for “recovery” are in agony, and are searching to either sell, or find out how long their misery will last. Markets bottom and skyrocket right at peak “good time to buy.” “When will recover” by and large has never exceeded “good time to buy” over this period.

What I’m saying is that there is a market structure and mechanism that now exists, where individual investors engage in a form of social trading – unlike institutional investors who go out of their way to hide their flows, individuals convene together on social media, apps/platforms such as this, and even the brokerage platforms themselves offering social trading products, discuss/hype each other up on ideas, and then go into the markets to execute on those ideas. And they do so ACROSS ALL platforms, but in aggregate, act as one giant asset manager’s flows, which are front run by HFT , pushed alongside algos, and finally chased by the pathetic closet indexing, underperforming/overcharging institutional active managers (who are no longer managing market risk, they’re managing career risk). And if the retail “morning meeting” is taking profits on winners (virus themed momentum tech), profit taking becomes contagious for that day/morning session, and the “retail virus immunity momentum tech index” constituents sell off together, while the rest of SPX or even the Nasdaq trade positive.

How this relates to BTC:

You may have also noticed that somewhat surprisingly amidst this cross asset madness YTD- equities, rates/bonds/credit, fx, commodities volatility on a global scale, BTC has been dead flat. Not just relative to other asset classes, but actually dead flat- realized volatility drifting ever lower, with the exception of mid March “liquidate everything” mayhem, where USTs and gold were sold off for dollar liquidity, BTC obviously not immune. That said, BTC was only as volatile as other asset classes, and if not for those other asset classes, has been doing nothing.

Before BTC fundamentalists jump up and exclaim how this is proof that BTC is indeed a store of value and uncorrelated and all that (which my own views are “perhaps, lets see” and “uncorrelated fundamentally, correlated in short-med term price behavior, and its the latter that I/most care about), I’m going to unfortunately burst your bubble with a view I’ve had for some time.

The reason BTC is doing nothing, or- the reason TSLA call options are trading $15bn notional a day, is because they compete with each other for trading activity and capital in/outflows – and this is because they share the same source of capital and trading activity: individual retail. Agreed that BTC was (and arguably still is) retail driven, yes? And recent TSLA /tech rally has atypically large retail presence, which is indeed impacting the markets, also yes? So in a sense, bubble enthusiasm isn’t necessarily “zero sum,” but one at a time. There’s only so much capital to hype up the broader masses enough to bring Elon Musk’s net worth from #40 to ranking within reaching distance of Zuck, Gates and Bezos (RANKING, not nominal $, for now at least). Keep in mind, US retail is not the only retail out there. Japanese retail (particularly millennials & Gen X) are FAR more aggressive with their trading activity, and far more disposable dry powder than US millennials, plus a 2~10 year head start. Japanese retail kicked off the 2017 BTCJPY rally, luring in BTCUSD and BTCEUR millennials. And currently, Japanese retail is also long US equity ETFs (denominated in yen, so SPY listed in Tokyo outperforming SPY on NYSE), and of course, they’re long TSLA – they too can buy fractional shares.

BTCUSD $10,000 and TSLA $1,000 competing for momentum breakout flows at psychological breakout points simultaneously. TSLA won in early July, BTC stays put.

If you look at this chart- BTC speculative bull interest used to trade in tandem with TSLA (which are both retail predominant flows, and neither TSLA nor BTC are some sort of SPX index heavyweight, correlated/correlating all things to it). But its been “abandoned” for momentum tech + TSLA call options, and it happened at a surface level obvious, but deeper dive interesting inflection point: TSLA breaking $1k. If anyone (human active traders) is to respond to “psychological levels” of round number resistance/support, its retail. BTC @ $10k & TSLA @ $1K were competing against each other as psycological levels, as they just so happened to match up in timing. And since July as TSLA broke clean through its $1k psychological (and actual level with a ton of delta hedging activity at/around the $1k strike) resistance for another +70% immediate upside, BTC remains absolutely flat, taking a nap just below $10k. BTCJPY also hovers around the ¥100,000 level YTD (a level that US traders of BTC need to not be so oblivious to – world may “revolve around the US” to some of you, but decentralized markets don’t and don’t care).

Conclusion: TSLA reports earnings after the bell tomorrow, and may be a catalyst for a major BTC upside move. TSLA Q2 earnings has an insane amount of focus (and capital) betting on one number: net profit/loss- as the belief is that should TSLA report its 4th consecutive quarter of net profit, they’ve now fulfilled the last requirement for S&P500 index inclusion and thus will be included, forcing billions of index tracking fund inflows.

I’m not going to speculate on what Tesla reports, I frankly don’t care. I will make 2 comments:

1) Optimistic fundamental scenario is certainly priced in- to what degree, who knows, but who is out there watching TSLA rally multiples YTD, and THEN buying after earnings confirm something? Clowns, that’s who. So there are likely no more buyers of TSLA fundamentals, which the stock price is FAR above anyway.

2) That leaves S&P inclusion catalyst. Just to be very clear: posting 4 Q’s of cumulative net profit is BARE MINIMUM ELIGIBILITY, not automatic inclusion. The index inclusion process is opaque, and involves non-tangible factors, hence there being a voting committee (opinions of humans, not black/white in/out based on numbers). And finally, its S&P500 , not 501. Need a dropout to replace. So this is not just a TSLA net profit vs loss in Q2 matter, its not even a Tesla matter alone. Again, I don’t care about any of this, I care only about the behavior of capital flows.

IF TSLA reports a profit, you can very well see outflows on profit taking. And if TSLA reports a net loss, pretty likely stock will tank. Either way, TSLA & US tech stocks have stolen away capital and interest in BTC around the world, as they share the same source of capital and interest. And the TSLA interest bubble may be over, regardless of results. BTC won’t automatically re-attract interest/flows. But if BTC (for whatever reason, TSLA outflows or otherwise) starts breaking meaningfully above $10k and starts jumping double digit % day after day, you will get a 2017 type of BTC rally on steroids. Conversely, if BTC starts rallying on its own, TSLA will get crushed as capital flows out of the stock and into crypto as the “next thing.”

Again, I’m not making a long or short call on anything, I’m just explaining the behavior of capital flows- which is ultimately what prices everything. Not earnings , not central bank printing, not ideology- capital flows and only capital flows. And it seems that capital has forgotten BTC for TSLA and US tech momentum, so being long BTC may prove to be a “short” Nasdaq position (ex the liquidate everything initial flows), but without losing money on nasdaq upside (as an actual short NDX would).

Stop looking at the asset, and where it “should” be. Wrong approach- capital flows and only capital flows decide where an asset should/will be. So therefore, turn around, and study the behavior of capital instead of the asset.