David Einhorn says we have reached the “Fartcoin” phase of the market cycle

David Einhorn of Greenlight Capital believes that speculative behavior in the current bull market has reached levels beyond common sense.

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

A crypto token called “Fartcoin” skyrocketed in popularity as 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 launch, other meme coins have emerged. Trump launched $TRUMP, a meme coin based on the Solana platform. Its market capitalization rose to over $14 billion over the weekend. In the last 24 hours, the coin fell by more than 20% at one point, but has since narrowed its losses to around 3%. Trump’s wife Melania also unveiled a coin.

“Nothing is stopping the introduction of many more tradable coins,” said Einhorn. “Perhaps we are exiting the fartcoin phase of the market and entering the Trump (and Melania) memecoin phase. What will happen next is anyone’s guess, but it feels like it’s going to be wild.”

Einhorn’s letter comes as investors are driving up stock prices, 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&P 500 And Nasdaq Composite rose by 0.8% and 0.7%, respectively.

Shorting leveraged Bitcoin ETFs

Greenlight took advantage of the craze surrounding cryptocurrencies in the fourth quarter by betting against some popular exchange-traded funds that are indirectly tied 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 earn double the daily return micro strategy, a software company that has evolved into a Bitcoin treasury vehicle in recent years.

Due to MicroStrategy’s volatility and the limited supply of derivatives that could most easily be used to achieve leveraged returns, the Funds have at times struggled to achieve this objective.

The letter said Greenlight took short positions against those funds during the quarter, partially offset by owning MicroStrategy shares in an arbitrage trade that was a “significant winner.”