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At the market opening on February 1st 2021 spot prices of precious metal jumped 10% and almost broke through the $ 30\ounce mark. Who is really behind the unexpected rally in the silver market? Should we expect a similar boom in other stocks, commodities or even cryptocurrencies?
Many news agencies including Bloomberg saw the relation of silver's skyrocketing rise to so-called Redditors, members of the Reddit forum who oppose the establishment. Apart from GameStop the WallStreetBets community has been buying up many other stocks including Nokia, BlackBerry and AMC. However, admitting their involvement in the stock market movement the users and moderators of the platform have aggressively distanced themselves from the attempt to silver short squeeze .
Talks of a possible silver short squeeze on r / WallStreetBets (abbr. WSB) began on January 27th. A special publication stated that the value of the precious metal could rise from $ 25 to $ 1,000 after a successful short squeeze.
Nevertheless the public opinion quickly turned against the proponents of buying silver and its derivatives . A popular thread post proclaimed, “There is no silver short squeeze happening. NONE. NEVER.
The thread moderators also stepped in and removed one of the earliest posts calling for an attack on the precious metal. However, on January 30th a small group of users detached from group and created their own r / Wallstreetsilver branch but they failed to gain a sufficient number of followers. At the time of publication the number of subscribers barely exceeds 16,500. For comparison: the r / WallStreetBets branch has more than eight million users.
Reddit denies involvement in silver pump
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📷Companies holding SLV: WhaleWisdom
Many of the WallStreetBets subscribers believe that the silver price pump will benefit the very organizations they rallied against. Indeed, big businesses and hedge funds are among the largest holders of the precious metal.
Citadel Investment Group owns approximately 6 million in silver stocks wherein investments from banks like Morgan Stanley, Bank of America and Wells Fargo are double that amount. Citadel is one of two companies that invested nearly $ 3 billion into Melvin Capital, an infamous hedge fund that nearly went broke on GameStop short. WSB users came to conclusion that the silver price increase would benefit these companies far more than the average retail investor.
Кроме того, такие ETF, как iShares Silver Trust (SLV), просто изменение стоимости серебра во времени. Поставщику ETF не требуется покупать физическое серебро по мере поступления новых инвестиций.
Moreover, the ETFs like iShares Silver Trust (SLV) are simply the change in the value of silver over time. The ETF provider is not required to buy physical silver as new investments occur.
On the other hand the forum residents claimed that buying stocks backed by physical silver could cause a significant drop in supply. This difference in supply and demand will result in large scale physical delivery of precious metal. Many are hoping this will quickly drive prices spike similar to how GameStop's stock price jumped last month.
Other users also noted that calls for a silver short squeeze were mostly coming from users with new accounts. This discovery confirmed earlier claims that the thread was a subject to provocative infiltration. Last week WSB members also stated that calls for a silver short squeeze could be a "coordinated attack" by Wall Street companies.
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By shifting community attention to silver, hedge funds are hoping to ease the buying pressure on GameStop. This will lower the price and allow these companies to safely close their short positions.
However, Reddit is an anonymous forum so it is not possible to know for sure who these users really are. In any case, the WSB users quickly returned to GameStop topic discussions. As of February 2nd 2021, most of the topics within r / WallStreetBets thread were focused on either GME or AMC.
Melvin Capital was rumored to have closed its GameStop position on January 27 but the company's cumulative short position still exceeded 100%. Even so, on February 2nd this indicator fell down to 39% of circulated shares volume. The reduction of short interest confirms the assumption that hedge funds started to close their shorts.
Cryptocurrency has entered the chat
Silver price raced nearly 20% up in three days, but there was another asset that made even more gains over the same period. The XRP token has risen in price by more than 56% in a single day and has tested the area above $0.75 on February 1st .
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XRP has been steadily dropping in price since December 2020, that is, since the US Securities Commission (SEC) sued Ripple, the token issuing company. Last month alone several major exchanges including Coinbase and Binance have either delisted the token or suspended the trading.
According to numerous reports, the price increase was initiated by a Telegram group called Buy & Hold XRP. In one single day the channel gained 200,000 Telegram subscribers that led the group to split into two.
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📷Reddit screenshot proving XRP pump
Despite the stable growth over the last week, the apex of the pump happened on February 1st. Reddit and other social platforms were encouraging Investors to buy and hold the coin for as long as possible.
XRP pump was initiated and organized outside the WallStreetBets thread. Nevertheless, the buy-and-hold call found support in XRP discussions, although there was no fundamental basis for this strategy. In post that was deleted from r / Ripple the user explained "Why the pump WILL work on Monday."
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📷Why the pump WILL work on Monday: Reddit
WSB investors have shown interest in token, but still, gave the pump initiative a cold shoulder. After the $ 0.75 breakout the bullish momentum began to fade out and the token rate quickly went down. Within minutes, XRP dumped 20% down to $ 0.60 per token. By February 2nd the token dumped once again and hit the price level of $0.39.
The big financial companies got stuck in short positions of GameStop and AMC stocks and therefore a unique opportunity for short compression arised. You can't say the same about XRP though: the SEC lawsuit fudged its fundamentals.
Several hours after the buy-and-hold strategy failed, retail investors came to Reddit to report their losses. There were several posts on the r / XRP thread where people either complained about the event or sympathized with the losses.
One of the thread members wrote: " I genuinely thought we could run it up and hold it, and now I, along with hundreds of thousands of others are stuck with the burden of watching the price go lower than when they bought in."
How cryptocurrency attracts new generation of investors
Even though XRP has tarnished the cryptocurrency's reputation in the eyes of some retail investors, the industry has yet a lot to offer. Bitcoin (BTC) represents a fundamental shift in our understanding of money. So unlike traditional fiat currencies, governments cannot manipulate the Bitcoin supply.
Decentralized finances or DeFi-projects offer a paradigm shift for the financial industry. During the battle for GameStop retail investors have learned a key point -you can't trust intermediaries. With DeFi users don't have to trust platforms like Robinhood and hope they act in good faith and in their best interest.
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📷Total amount of locked funds in DeFi: DeFi Pulse
Many have embraced this idea, as evidenced by the ecosystem's almost exponential growth since mid-2020. According to DeFi Pulse more than $28 billion in assets are currently locked within various protocols. They provide a variety of applications - from gaming to insurance.
The GameStop story has proven that the purchasing power of retail investors is a force to be reckoned with. According to some reports, sellers lost $ 20 billion in this battle. This money passed into the hands of private investors and very soon will get into the crypto space from there.
