The Breakdown - The Return of Roaring Kitty

Episode Date: May 15, 2024

Roaring Kitty aka Deep F***ing Value aka Keith Gill has reemerged and with him has come memestock mania. NLW digs in, plus looks at DC's increasing pushback against the Anti-Crypto Army. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, May 14th, and today we're talking about the return of roaring, Kitty. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, as we discussed yesterday, there are a number of crypto ads political follow-ups. However, first, we have to get into a story which has captured everyone's attention,

and that is that Keith Gill, aka Roaring Kitty, aka Deep Effing Value, made his return to Twitter on Sunday night. Roaring Kitty has not posted in almost three years. His return was a meme of a gamer bolting upright in his chair, suggesting that the game is back on. Now, what game is that? Well, Roaring Kitty was the central figure of the GameStop short squeeze of 2021. He was an individual investor that launched the meme stock crazed with a thesis that GameStop was vastly undervalued. This thesis went viral across Wall Street bets, but Roaring Kitty continually insisted that he wasn't coordinating a pump. He simply liked the stock. GameStop rose from a price of $4 in December 2020 to be traded at several hundred dollars the following month. It's difficult to give a precise top

in terms of where it went, as so much of the frothy trading happened pre-market and often. market via secondary trading venues like Robin Hood, but at the peak of the mania, Robin Hood turned off the buy button, leading to claims of market manipulation from retail investors. The heads of marketmaker Citadel Securities, hedge fund 0.72, and Robin Hood were all hauled before Congress to explain themselves. Roaring Kitty was also present, giving now legendary testimony from his basement, complete with a stained wall and a poster of a cat featuring the words, hang in there. The GameStop saga was turned into a film called Dumb Money. It depicted both the rigged game going on behind the scenes on Wall Street, as well as the everyday

retail investors looking to stick it to the man, one $20 buy order at a time. But it's now been more than three years since GameStop spiked and then collapsed. Everyone thought it was over until yesterday. Media coverage encouraged the view that this was a story about stupid retail traders losing money on a false dream, or alternatively getting rich by beating the hedge funds at their own game. In other words, that this was just a flash in the pan that immediately died off. To the extent that that's true, it misses an important point. And that was that GameStop lit a fire inside of markets that continued to burn. The stock is down. but not as much as you'd think. There was a slow bleed out over the course of two years,

with periodic spikes back up to $40, $60, or even $80. GameStop closed on Friday at 1750, after rising by 70% since the beginning of May. Short interest was still above 25%. Once markets opened on Monday, the stock went ballistic. It was up over 100% within the first hour, despite trading being halted nine times for volatility. Roaring Kitty memed on Twitter throughout the day and the stock closed at $30, up 75%. There were multiple reports of Robin Hood and other brokerages rejecting orders during trading hours. Overnight, it appears that Robin Hood set trading limits, canceling orders outside of a 20% range. According to data from S3 partners, short sellers have racked up $1.4 billion in mark-to-market

losses so far. So what could be taken away from this, if anything at all? The most obvious take is that Roaring Kitty has fired the starting gun on the return of excessive retail speculation. Cold-blooded Schiller tweeted, meme stocks ripping with Kitty's return, absolute meme economy in effect across all markets now. Memecoin trader Craig wrote about how remarkable the vibe shift has been, tweeting, internalized for 10 seconds would just happen. Vives are absolutely abysmal once again. Everyone had a hot take that retail was done with everything.

One guy tweets two times and meme stocks are up 90% in a single day, and now meme coin capital rotation is flowing and volume is up on everything. Literally 24 hours can change the whole ecosystem. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto.

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on a single stock should impact the monetary policy in the largest economy on Earth, but then again, any will take any opportunity to call out the Fed for looking bad. Another question that comes up, however, is that of market manipulation and SEC enforcement. Rowing Kitty didn't tweet the ticker. He didn't even post a rocket ship emoji, which was featured in SEC lawsuits during the last meme coin run. All he tweeted was a meme indicating he's back and a string of videos with unclear meanings. To sum, this blurs the line between coordinated market manipulation and online free speech. While some are calling for the SEC to clamp down, they never took enforcement action against Roaring Kitty last time around and it's difficult to make the

case that this time is worse. Perhaps the strongest theme in all the commentary has been that the replay of GameStop Mania is yet another example that traditional stock markets are broken. Underpinning all the conspiracies about Robin Hood and Citadel is a kernel of truth. These 24-hour trading venues have a fundamental mismatch with the hours of the stock market, which can sometimes cause massive problems. To some, crypto market infrastructure is the answer as a viable alternative. Crypto McKenna wrote, They are already halting trading on GME, which just demonstrates that centralized exchanges are prone to censorship by their overlords. Feel like this is GameStop round two, but this time we will have a

Dex alternative to GME. Feel this can go way higher than people think. It's about sending a message. See Casa tweeted, if you saw GameStop trading being halted today after everything that preceded it, including a box office film that highlighted the Suss regulatory and hedge fund left efforts to suppress the free market, and you didn't immediately think we need to protect crypto at all costs, then you don't realize the very real impending threat to our collective freedom. If you are pro-crypto this election and your opponent is not, you have my vote. Whether or not you recognize it yet the memes will prove to be our strongest and most essential line of defense. We will, of course, continue to watch this story and maybe dig a little deeper into what it means, sociologically speaking.

But for now, let's bridge over into crypto and do the follow-up to the politics that we were discussing yesterday with some specific actions that have been taken. It appears that crypto legislation could be getting a final look before the election. Over recent months, much of the focus has been on stablecoin legislation, the assumption being that the stablecoin bill was more polished and less controversial, making it easier to pass. And there was a big push to get the stablecoin bill attached to recent must-pass legislation, but those efforts fell apart earlier this month. Now, Financial Services Committee Chairman Patrick McHenry says that the crypto market structure bill will be moving forward to a vote in the House. The bill will be considered by the House

Committee on Rules, which sets the voting agenda. The vote is expected to be held by the end of the month. The bill is now called the Financial Innovation and Technology for the 21st Century, or Fit 21 Act. It was the product of years of bipartisan efforts to nail down exactly what crypto regulation should look like in the U.S. primarily the bill deals with how crypto tokens should be classified, either as securities or commodities. It also divides up the regulatory jurisdiction between the CFTC and the SEC. The Fit21 bill was passed through the committee stage last year with bipartisan support. Both sides of the House Ag Committee supported the bill with no serious objection. The House Financial Services Committee was another question, with Democrat ranking member Maxine Waters

loudly objecting to the bill, along with factional allies on the committee. The markup session was wild, with Democrats obstructing the procedure at every turn. Democrat Stephen Lynch called it, quote, The worst piece of legislation that has been presented for markup in my 20 years in Congress. However, the vote still passed with a handful of Democrats supporting the Republican majority. Patrick McHenry has considered crypto legislation to be his legacy in Congress, stating, with the floor vote announced today, Congress will take a historic step to provide a clear regulatory framework for digital asset markets.

This legislation will cement American leadership of the global financial system for decades to come and bolster our role as an international hub for innovation. Republican House leadership released a string of positive comments along the same lines, but more important in this case is what Democrats are saying about the bill. Rokana has thrown his weight behind it, saying, Congress will finally bring clarity and safety to blockchain. This bill done a bill I co-led. Innovation and jobs have left because of regulatory uncertainty. I will support this bill provided no poison pill amendments as it defines what is a security and what is a commodity.

Wiley Nickel wrote, Fit21 will provide needed regulation for the industry and protect American consumers. I co-sponsored this bipartisan legislation when we passed it out of the House Financial Services Committee and will push for passage when it reaches the House floor. in just two weeks. Alas, at this stage, the bill seems unlikely to pass a vote in the Senate, so probably won't become law. In a Monday note, Investment Bank TD reinforced that idea, writing, we believe it would be a mistake to fixate on the details of this legislation. It has no chance of becoming law in this Congress. Senate banking is not done nearly enough prep work for the legislation to pass in the Senate. In addition, Democrats are far more focused on investor

protections than on what is included in this bill, end quote. Analysts noted that Senate banking chair Sherrod Brown has been very quiet about this bill so far. The note suggested that the House vote is still an important step, stating, quote, it would be a critical building block for Congress in 25 and 26 when we expect a renewed effort to enact crypto market structure legislation. It puts House members on the record and shifts the focus to the Senate to move its own bill. Now, we saw the power of forcing a vote on crypto last week when a bill to repeal Saab 121 was brought to the House floor. 21 Democrats voted for the bill in defiance of their party and their president. A second vote would reinforce the fact that crypto has become a live political

issue for congressional candidates. Now, the second political action update comes from Senators Cynthia Lummiss and Ron Wyden, who have penned a letter expressing their concern about the DOJ's recent crackdown on privacy-preserving wallets. The bipartisan senators are referring to the recent arrest of samurai wallet founders on allegations they were operating an unlicensed money transmission business. The arrest caused a chilling effect, which saw several additional wallets shut down in the U.S. The letter also referenced the ongoing tornado cash prosecutions. The Senators wrote, quote, the DOJ's unprecedented interpretation of this statute in the context of non-custodial cryptoasset software services contradicts the clear intent of Congress and the

authoritative guidance of FinCent. This interpretation threatens to criminalize Americans offering non-custodial crypto asset software services. The letter mirrors arguments made by industry figures shortly after the samurai arrests, that money transmission requires a company to take control of customer assets. It argued that this was the clear intention of Congress. Without this limiting factor, the letter claimed a huge range of internet service providers and postal carriers could be considered money transmitters because they send and receive messages regarding payments. More than anything, the senators pointed out that this new interpretation from the DOJ makes it, quote, difficult for ordinary Americans to determine what their legal obligations are.

The senators wrote, the DOJ should not diverge from the clear, logically sound, and well-established definition of money transmission established by FinCEN. Subjecting developers of non-custodial crypto asset software to potential criminal liability as unregistered money transmitters contravenes the well-established interpretation of this provision and will only serve to stifle innovation and shake confidence in the DOJ's respect for rule of law. Safeguarding the rule of law and nurturing the development of transformative technologies are not mutually exclusive. We expect that the DOJ can chart a wise course that accomplishes both. Lummus added in the statement on Monday that, quote,

The Biden administration steamrolling the existing and longstanding interpretation of FinCent is not only wrong on the law, but undermines the entrepreneurial foundations that make America the global economic leader it is. Wallet software is no more to blame for illicit finance, then a highway is responsible for a bank robber's getaway car. So friends, we are in the thick of it now. We've got Roaring Kitty back, the return of meme stocks, crypto becoming a much fiercer political issue. The old logic may be sell and may and go away,

but right now it feels like the summer is just heating up. I want to say one more big thank you to my sponsor for today's show. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.