David Einhorn says we have reached the ‘Fartcoin’ phase of the market cycle

David Einhorn of Greenlight Capital thinks speculative behavior has risen to levels beyond common sense in the current bull market.

“We have reached the ‘Fartcoin’ phase of the market cycle,” Einhorn wrote in an investor letter obtained by CNBC. “Other than trading and speculation, it serves no other obvious purpose and fulfills no need that is not served elsewhere.”

A crypto token called “fartcoin” exploded in popularity when the recent election of Donald Trump unleashed a storm of animal spirits on Main Street. The meme coin is now approaching a market value of $2 billion, surpassing many US listed companies.

Since fartcoin’s inception, more meme coins have emerged. Trump launched $TRUMP, a meme coin built on the Solana platform. The market capitalization rose over the weekend more than 14 billion dollars. The coin at one point fell more than 20% in the last 24 hours, but has since cut its losses to around 3%. Trump’s wife Melania too revealed a coin.

“There is nothing stopping the launch of many more tradable coins,” Einhorn said. “We may be leaving the Fartcoin stage of the market and entering the Trump (and Melania) memecoin stage. It’s anyone’s guess what will happen next, but it feels like it’s going to be wild.”

Einhorn’s letter comes as investors push stock prices higher, buoyed by expectations of lower taxes and deregulation from the second Trump administration. On Tuesday, the day after the inauguration, the Dow Jones Industrial Average collected more than 400 points. The S&P500 And Nasdaq Composite rose by 0.8% and 0.7% respectively.

Shorting Bitcoin ETFs with Leverage

Greenlight took advantage of the crypto frenzy in the fourth quarter by betting on a number of popular exchange-traded funds indirectly linked to bitcoin.

The two funds the firm focused on were the T-Rex 2X Long MSTR Daily Target ETF (MSTU) and the Defiance Daily Target 2X Long MSTR ETF (MSTX). These funds use derivatives to try to achieve twice the daily return MicroStrategy, a software company that has turned itself into a bitcoin treasury vehicle in recent years.

The funds have at times struggled to achieve that goal due to MicroStrategy’s volatility and the limited supply of the derivatives most easily used to achieve the leveraged returns.

The letter stated that Greenlight took short positions on these funds during the quarter, partially offset by owning MicroStrategy shares in an arbitrage transaction that was a “material winner.”