Call it a strong hunch: There were people with advance knowledge of Tesla’s big announcement — and they used that knowledge to take large positions in Bitcoin, and Bitcoin-related equities, too.
We don’t know these people, but we saw their footprints in the charts.
A sizable tremor of buying activity rippled across all our Bitcoin-related holdings the Friday before last. For TradeSmith Decoder subscribers, that led us to issue an “urgent Bitcoin buy alert” on Jan. 29.
Before getting into the buy signal details, we should clarify the news.
The Bitcoin price exploded to new all-time highs above $44,000 today (Monday, Feb. 8) on news that Tesla has purchased $1.5 billion worth of Bitcoin and intends to accept Bitcoin as payment.
Tesla revealed the Bitcoin news in a filing with the Securities and Exchange Commission (SEC), stating the BTC purchase would enable “more flexibility to further diversify and maximize returns on our cash.” Tesla also said it would accept Bitcoin for product payments “initially on a limited basis.”
As of year-end 2020, Tesla had more than $19 billion in cash or cash equivalents, which suggests the $1.5 billion Bitcoin purchase is worth roughly 8% of liquid assets.
It will be interesting to see how the SEC handles this situation — if they even take action at all, that is.
In recent days, Elon Musk has been promoting cryptocurrency more aggressively than ever before.
About two weeks ago, Musk changed his Twitter bio to say “#bitcoin,” as did a handful of other Silicon Valley heavyweights.
Shortly after that, Musk said the following in a social media chat: “I do at this point think bitcoin is a good thing, and I am a supporter of bitcoin.”
Talking up the value of Bitcoin — prior to one’s company announcing a Bitcoin initiative of blockbuster size and importance — could present an interesting dilemma for the SEC.
By the SEC’s own definition, Bitcoin is not a security, but rather more of a digital commodity. And insider trading isn’t a punishable offense with commodities.
The early buying of crypto-related equities, however, could be another matter, because insider trading laws very much apply to publicly traded entities.
And somebody was buying crypto stocks. We know this, because we saw their footprints — a groundswell of buying activity that showed up in the price action — and acted on it.
Below is a lightly condensed excerpt from the TradeSmith Decoder broadcast on Jan. 29, just a week prior to the Tesla bombshell:
An Urgent Bitcoin Buy Alert (For Those Still on the Sidelines)
Today was supposed to be a model portfolio update. We are pushing that back to Monday or Tuesday, however, to share a very important announcement:
It is now a good time to buy Bitcoin, and a good time to buy the Bitcoin-related names in our portfolio.
Recent developments — very recent, like all in the past 24 hours — have changed the Bitcoin picture dramatically, and created a window of opportunity to act for those still on the sidelines.
We don’t have official recommendations today because the Decoder Model Portfolio already has enough exposure…
With the above said, for those who are following along and don’t have enough crypto exposure — because you didn’t buy when we did, or you subscribed to Decoder in recent weeks, or for whatever other reason, and haven’t yet found a place to get into crypto — now looks like a good time to act, or to add to existing exposure if you want more…
The alert went on to describe, in significant detail, a confluence of factors that were all highly bullish for the Bitcoin space. (We didn’t know about the biggest factor of all at that time — the Tesla plan — but again, our strong hunch here is that others did.)
In the week that followed the alert, the crypto-related equity buying intensified — driven, in our view, by insider awareness of Tesla’s big reveal — and then on Friday, Feb. 5, the buyers just went wild.
By “wild,” here is what we mean: In the TradeSmith Decoder model portfolio, our largest crypto-related equity holding — and our largest stock position by far — saw a 22% gain in value on Feb. 6 alone.
Twenty-two percent in one day!
And that was on top of 700% gains in less than a year — and today (after the Tesla announcement) it is flying higher still. (We still maintain a very large position.)
At first, upon seeing Friday’s “melt-up” style close — with our other BTC-related equities having gone vertical, too — we could find no rational explanation.
But then the Tesla announcement cleared things up.
On seeing the Tesla announcement, it instantly became clear: For one of the most valuable and high-profile companies in the world to plunge headfirst into Bitcoin — and accept it for payment — is game-changing news, and folks in the know were buying crypto stocks across the board in advance.
Insider trading will never be stamped out, no matter how hard the SEC cracks down on it. It is just too lucrative under the right (or perhaps wrong) circumstances, and too many people will be tempted.
Then, too, that strange question remains: If Bitcoin is more of a commodity than a security, were laws officially broken?
Either way, here is the beautiful thing for us: Insiders can’t hide their footprints, and there is nothing illegal or nefarious in acting on those footprints.
If someone wants to buy in size based on what they know — and if they have to do it quickly, before the news is revealed — their buying footprint will show up in the price action.
And price action is, of course, completely public information. That means observant traders and investors can recognize something is afoot (no pun intended), and possibly take lucrative action on that knowledge.
That is what we did, in part, with our “Urgent Bitcoin Buy Alert” to TradeSmith Decoder subscribers Jan. 29. Though we had no advance knowledge of what Tesla was going to do, there were plenty of other confirming signals, and our strong suspicion now is that others did, in fact, know — and tipped us off via price action as they bought with both hands.