February 22, 2021-“Diamond Hands” Keith Gill Testifies to Congress on GameStop Saga. Is Meme Stock Investing Officially Over?

Bitcoin Market Capitalization Reaches $1 Trillion. Is it Too Late for Investors to Buy?

Lithium-ion Battery Recycling Company Li-Cycle to Go Public Through SPAC Peridot Acquisition. Did the Market View the Deal Favourably?

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.

Julian Klymochko: Welcome podcast listeners to episode 117 of The Absolute Return Podcast. I am Julian Klymochko.

Michael Kesslering: And I’m Mike Kesslering. 

Julian Klymochko: Today is Saturday, February 20th, 2021. Same as always. SPACs, M&A, Bitcoin. We’re even going to chat about Diamond Hands this week. 

  • That’s right, Diamond Hands Keith Gill testified to Congress on the whole GameStop saga, is meme stock investing officially over? Short life and death of meme stock investing. We’re going to get into the whole GameStop and conclude that file there. 
  • Bitcoin market capitalization reach $1 trillion dollars this week. Is it too late for investors to buy? 
  • And lastly, Lithium-ion battery recycling company Li-Cycle to go public through SPAC Peridot Acquisition, did the market view this deal favorably? 



Julian Klymochko: First, Mike let’s get into Diamond Hands, that’s right. Also known as Roaring Kitty or Deepf-ingValue. 34-year-old Keith Gill, a retail investor known through YouTube, basically came a folk town hero on the WallStreetBets, Reddit chat room, really the face of this GameStop meme, stock rally. He turned a $50,000 dollar investment into as much as $40 million at its peak through shares and call options of GameStop. This video game retailer, which had a unexpected massive, massive rally short squeeze, gamma squeeze. We’ve talked about those dynamics on the podcast in previous episodes. What happened over the last week was Gill was hauled in front of the house committee on financial services to testify on GameStop trading activity in January, this massive squeeze and when GameStop became the number one traded security on the planet, even more than S.P.Y, which was it’s absolutely mind-blowing. It was a complete frenzy, but in his testimony, Gill denied the assertion that he used social media to influence thousands of investors to speculate in GameStop shares, claiming that he only, quote. “Likes the stock.” And it’s interesting how he got into it because he’d been bullish on GameStop for a while, analyzing it, fundamental analysis, thinking it was undervalued and took a big bet.

His analysis initially came out in summer 2019, I believe so. After he put out his thesis, he was buying call options, increasing his position throughout 2019/2020. So certainly, this was more of a long-term investment for him. And it’s an interesting dynamic because he did the due diligence. He did the work, the analysis to deem that GameStop from a fundamental perspective was undervalued. And at the time, perhaps it was, I think at some point in time, it was trading below its net cash value. So classic Ben Graham, net, net undervalued, value stock. He determined that took a big swing, basically put his entire account into not only the shares, but the call options as well. 

But I wanted to touch on the notion of thesis drift because what started out as a big bet on an undervalued stock basically turned into like a movement, this whole Diamond Hands, which is this new terminology that came from WallStreetBets that is indicative of never selling a position no matter how high it went up, and I don’t know if Gill sold much of any of his positions, maybe took some profits as he rolled his call options, but nonetheless, he still has roughly $20 million or so as of Friday invested in this trade. But, you know, given his initial analysis, it’s hard to deny that the stock is still undervalued or perhaps is not significantly overvalued, but nonetheless you know, he’s not really to blame here. I always thought that GameStop was being manipulated by someone where they’re just trying to cause a gamma squeeze or short squeeze. I don’t think Roaring Kitty was the specific person causing that. But nonetheless, he was a key actor in the entire meme stock investing craze of which now the government is involved. It doesn’t look like Roaring Kitty will be necessarily punished from that perspective of manipulation perspective. However, there is a lawsuit because he did have a position at MassMutual, I believe, so he’s some sort of financial advisor and people should note that, in fact, he wasn’t necessarily just an amateur investor. He was a professional, he might even have a CFA designation. So, note that he is classically trained as a financial analyst and that’s why he got into the stock because he deemed it as undervalued. Mike, what are your thoughts on the entire house committee on financial services grilling? I’m not just Keith Gill, but also, we had Gabriel Plotkin from Melvin Capital. We had Ken Griffin from Citadel, amongst other people also getting absolutely grilled. 

Michael Kesslering: Yeah, I mean, the whole thing was just kind of a debacle, the committee. I mean, there is lots of discussion around short selling and I think a lot of the comments from the committee were a little misinformed around the negatives of short selling. And I believe some of them were quoted as saying that short selling hurts everyday people, which we’ve talked about that before. And that’s just simply not the case. And they’re taking a lot of things out of context, with Keith Gill, I mean, yeah, there’s definitely some thesis drift with his position. One thing that I thought was really interesting that actually Ken Griffin from Citadel, the founder of Citadel, brought up, his comment is, for those of you unaware. There is Citadel the investment manager and then there’s Citadel Securities which is the broker that operates their dark pool and an operates as a traditional securities trading broker. Those are two different entities. But what’s notable is what he was talking about. Was that an interesting solution and something to help the trading community would be to shift more trading back to traditional exchanges. 

Now, why that’s interesting is because Citadel Securities operate, I believe they account for about 20% of trading that is executed off exchange often referred to as in the dark. So interesting that he would be saying something that would, I mean, really just be taking flow away from their dark pools. But his rationale for that was that any trading that is on the lit exchanges, it helps them with their own price discovery for their dark pool. 

Julian Klymochko: Right.

Michael Kesslering: So, although they may have a little less volume in the dark pool, the price discovery for them is a lot better. So, I thought that was interesting, and then it really just kind of got me thinking about, you know, all of the comments around payment for order flow, Robinhood. 

Julian Klymochko: High-frequency trading. 

Michael Kesslering: And high-frequency trading, I mean, all of this came about with the digitization of trading and right now you have exchanges are limited to tick sizes of a penny. The other interesting aspect is that dark pools actually have tick sizes that are fractions of a penny. So that point’s interesting, but people are, I think are forgetting with all this negativity around high-frequency trading is that with the digitization of trading, like the tick size used to be an eighth of a dollar and then move to a 16th of a dollar. So about 6 cents prior to 2001 when they started moving it to being more digitized. And so just think of like, right now on your exchanges or in the dark pools, you’re looking at about a penny bid ask spread for some of the most liquid securities. Whereas before, the most liquid securities, the lowest spread you could get was 6 cents. That’s a big deal, that people aren’t taking into account when they’re complaining about payment for order flow and things of that nature. The other aspect is no trading commissions, you know, you used to be looking at kind of around $50 dollars to a $100 dollars per trade. 

Julian Klymochko: Yeah, that’s crazy.

Michael Kesslering: You know, that’s certainly changed a lot and maybe some of that’s for the worst, but I just thought that was interesting to keep it in context. And I mean, a lot of the narrative is well around this whole scenario was that, everyday retail investors were beating hedge funds and in some cases that was true. Melvin Capital definitely had some big shortfalls to make up for.

Julian Klymochko: They got the worst of it. Losing, what? 3 billion or so.

Michael Kesslering: Yeah, and they needed capital injections. So that was, you know, a pretty negative scenario for them, but wasn’t necessarily all retail. I mean, that will up for debate moving forward, but it’s looking more and more like that was not the case. I mean, the biggest winner on the other side was actually a Canadian firm, Senvest Capital, where it was estimated they made about 700 million on their position. It’s a scenario where the narrative may not match what actually transpired. But ultimately stuff like this, I think will happen again in the future. It may not be the exact same scenario, but I think some of this is a little bit of insight into what we’ll see in capital markets moving forward.

Julian Klymochko: Yeah, no doubt. So, to conclude the GameStop saga. Hedge funds made a boatload of money, you mentioned Senvest banking, $700 million, no doubt Ken Griffin and Citadel made, what? Hundreds of millions of dollars by our estimate.

Michael Kesslering: Hold that options activity, yeah. They would have been doing very, very well making markets on those options. 

Julian Klymochko: Yeah, and this really just concludes the whole GameStop saga. They continue their descent, falling 92% from the peak. It’s not coming back. It’s over folks. Meme stock investing was fun while it lasted, but let’s go on to different things. Concluding that file, we all had a lot of fun. 



Julian Klymochko: Next up, Bitcoin. Fueled by a 92.2% year to date, rally and price. It reached; this asset class reached a $1 trillion dollar. Market capitalization for the first time this week, which is super exciting. This recent surge has been driven and different from previous Bitcoin bull markets. This one has mostly been driven by institutional buyers, including corporations, such as Tesla and MicroStrategy. We’ve discussed this in the past, endowments now, including Harvard and Yale owning Bitcoin. Insurance companies, such as MassMutual. And now the long way to launch of Bitcoin ETF specifically in Canada, which were the first to launch.

Ironically, we expect now to see a flood of institutional buying with Bitcoin at an all-time high, up from pennies to now north of $50,000 dollars, because the asset class now has a $1 trillion dollar market capitalization, which is a level that many institutional investors required to be comfortable with the asset class prior to allocating. So, continue the discussion on the institutionalization of cryptocurrency, specifically Bitcoin, as an asset class. And now it seemingly is only a matter of time before Bitcoin is a default allocation in diversified portfolios. Now this we’ll start with endowment portfolios, Harvard and Yale are already there. We’ll see other endowments follow and then we’ll see institutional pensions, and what’s really interesting. What I find most fascinating about the Bitcoin market is it was one typically in asset classes, it’s the institutions that start first and then retail will be last after institutions made all the money.

However, Bitcoin, it’s a great story because that was completely reversed. It was embraced by retail first, retail got rich and now institutions are getting in so much later. It’s really refreshing to see the little guy win in Bitcoin, which is a brand-new asset class. So, in terms of price targets, I like to look at Gold. Gold has a market cap of about $10 trillion. So that is indicative of Bitcoin, can 10X from year just to be on par with Gold. And in my opinion, Bitcoin is superior form of digital gold and the yellow metal. 

I did want to remind listeners that Bitcoin has a 10% weight in the Accelerate One Choice Alternative Portfolio, ETF symbol, ONEC on the TSX MITRE. Mike, what are your thoughts on this new milestone for Bitcoin? Certainly, an important one in this asset classes story.

Michael Kesslering: Yeah, absolutely. And I mean, the more milestones that it hits like this, the more it just becomes a bit more mainstream. And we’ve talked before about how this kind of virality and Bitcoin, I mean everybody can have their opinion on this sustainability of the rally, the price rally. But it certainly has been becoming more a part of different institutions portfolios. So that just gives more insight. Like I have no opinion on the price, but that it is an asset class that is here to stay. I think there is a ton of validity to that. I did want to highlight as well. Just some research that I came across last week that I thought was of interest. It was actually from Murray Stahl, from Horizon Kinetics, and I’ve always found their investor letters, interesting. typically, contrarian thinkers and I’ve long been proponents of Bitcoin. Also, quite big proponents of exchanges. Really kind of anything with a monopoly, which makes sense. But really his thesis on Bitcoin that he outlined comes down to no matter what your is on cryptocurrencies. The potential upside of investing, which you just mentioned, Julian, and he actually has an even higher target on where it can go to. But that’s on the upside and it’s just so great that there’s such a high upside potential that even when you factor in the very non zero probability, that Bitcoin is worth nothing or worth a fraction of what it’s worth today, that to put a small portion of your portfolio in it. And I believe he was talking less than 1%. It could have a very material impact on an everyday person or a fund.

So, either retail or institutional can have a very material impact on a probability weighted basis because of that upside potential, even when you factor in the potential that it goes down 95% or something like that. And that’s where really the second part comes in, is that the importance of position sizing. And so, I don’t think many people are recommending that you take 100% of your liquid net worth and invest in Bitcoin, but does around 1% make sense? Perhaps that makes sense. It really depends on risk tolerance, but it’s becoming a lot more reasonable argument as we move forward for including it in a portfolio.

Julian Klymochko: So, the question, is it too late for investors to buy Bitcoin? I don’t think so. You look at the supply and demand characteristics of fixed supply, 21 million coins of which seemingly go down and down every single day as more and more people kind of lose access to their wallets, unfortunately. So that is one aspect of this unique asset class in storage and the importance of having tight security with respect to that. But then on the demand side, a massive increase in demand. Given it reached that $1 trillion milestone, we’ll see more and more institutional investors, including it in their portfolios. So, fixed or perhaps declining float supply combined with tremendous increase in demand. That’s indicative economics 101 of where the price is going to go. So, my next price target, I think, you know, a hundred thousand dollars, that’s not out of the question. And so, we will continue to watch for that and maintain being constructive on Bitcoin. However, note that it’s incredibly volatile and can easily drop 80% to 90%. So, keep that in mind and size the position such that you can win withstand that extreme volatility. 



Julian Klymochko: Some SPAC news, Toronto based Li-Cycle a lithium-ion battery recycling startup. Founded in 2016 has entered into an agreement to merge with blank check company, Peridot Acquisition Corp. Now this going public transaction via SPAC values. North America largest Lithium-ion battery resource recycling company, at 1.1 billion. This is expected to raise 650 million in gross proceeds capital that the company can use to fully fund its global expansion. So really playing off that ESG sustainability theme that we’re seeing, is more and more popular in the SPAC space. Li-Cycle acting as the largest in North America to recycle Lithium-ion batteries. So, it really plays on the theme on increased usage specifically electric vehicles and, you know, once they reached the end of their life, how can we efficiently make the best use and recycle those materials? So certainly, on a theme, on a story basis, they strike all the right cord. 

So once public Li-Cycle well represent on the grow, represent a bet on the growing use of recycled batteries, increasing demand for Lithium-ion power sources for products such as electric vehicles and, you know, perhaps electric motorcycles, electric Sea-Doo. I think those are coming soon, nonetheless, on this deal. Expected to close in the second quarter. And when it does close, the symbol while changed to L.I.C.Y for Li-Cycle. When the business combination with SPAC Peridot closes. I got to disclose that The Accelerate Arbitrage Fund ETF, ARB does hold shares a Peridot Acquisition that we bought at around the IPO. So, we’re like in this deal. Shares of this SPAC gain 17.3% this week on news of the Li-Cycle transaction. Mike, what are your initial thoughts on this SPAC business combination?

Michael Kesslering: Yeah, I think outline the kind of investment thesis that one would take if they’re so inclined to invest in the company. This is really kind of the picks and shovels aspect of the EV industry is, you’re not making a bet on any particular electric vehicle maker. It’s not a Lucid versus Tesla discussion. It’s not a Niko discussion. Okay with the AMI batteries within electric vehicles are going to be what’s used. And this is a way to make a bet on the directional bet on that. So that part of it is very interesting. I did find an interesting stat within their investor deck. Was that something that surprised me that 5 to 10% of battery production is rejected as waste during the manufacturing. I feel like that’s something interesting to highlight when you’re looking at the electric vehicle makers, just when you’re looking at their manufacturing costs, that that seemed very high to me. So that, that was interesting. And as well, I mean, not surprisingly given some of the discussion around what they do for their business model, but this is not an asset light business. So, they are expecting almost a billion dollars. I believe it’s around 950 million in CapEx during the time period from 2021 to 2025. So, it’s definitely a capital-intensive business. 

Now capital-intensive doesn’t mean it’s a bad business. There are plenty of capital-intensive businesses that the capital intensity actually provides a little bit of a moat as opposed to some of the more popular software business models where you’re looking at like 85% gross margins, it’s a very different business model than that. Just thought I would highlight that as there will likely be further financing needs as they move forward. However, some of that can be taken care of with their contracts that they are entering into right now for off-take, from manufacturers, but interesting deal. Interesting to be able to look at a different aspect of the electric vehicle industry, for sure.

Julian Klymochko: And one characteristic of this deal really exemplifies a key competitive advantage of the SPAC structure for startups in raising capital. This deal value of Li-Cycle is at $1.1 billion, and it’s expected to raise 650 million in cash. So, a majority of its enterprise value they’re raising in capital to fund their growth plans. You really can’t get deals like that in the private markets or via traditional IPO. Typically, in your average private funding round, it’s, you know, 15 to 25% of the value of the company. And this one is closer to 60%, six zero precent, so keep that in mind. The uniqueness of this SPAC structure and another deal, another sustainability type company, come into the public markets. So, check that one out. If you’re looking to overweight ESD type companies, that’s it for us, ladies and gents on this episode of The Absolute Return Podcast. If you enjoyed it? check out more at absolutereturnpodcast.com, leave us a review. Would appreciate us, follow us on Twitter, Mike what’s your Twitter handle?

Michael Kesslering: Is @M_Kesslering

Julian Klymochko: And mine is @JulianKlymochko, K.L.Y.M.O.C.H.K.O. We wish you all the best in your investing over the next week, and we’ll chat with you soon. Bye everybody.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.


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