💔 Is it a breakup?

Bitcoin drops after Musk's tweets, Chinese tycoon loses $14 billion, SoftBank to back Flipkart, and some more updates.

the mesha tribe

Jun 04, 2021

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There’s so much to cover today so let’s get started.

First up,

Market Snapshot 📈

Sensex: 52,100.05 (-0.25%) ↓

Nifty 50: 15,670.25 (-0.13%) ↓

Dow Jones: 34,577.04 (-0.067%) ↓

Nasdaq 100: 13,529.68 (-1.07%) ↓

Bitcoin: $36,493.45

Top Stories 📰

1. Elon tweets, Bitcoin falls 📉

There's no denying the effect that Musk has on the crypto industry.

The world's largest cryptocurrency reported a 5.4% decline to nearly $36,980 after Musk tweeted #Bitcoin with a broken heart emoji and a reference to Linkin Park's 'In the End.' Shortly after, he also replied "Nice" to a tweet posted by Coinbase about rival crypto Dogecoin, which dropped as much as 13%. Meanwhile, Ether also fell 4%.

The tweets, as expected, weren’t well-received by the crypto community. While some investors speculated the recent tweets to be a possible hint for a Tesla-Bitcoin split, others simply deemed it as trolling.

The drop also reversed the recent stabilization of cryptocurrencies, which faces growing regulatory scrutiny in the US and China.

The incident is among the many instances where Musk's tweets have sent shock waves across the crypto world. Earlier, Musk tweeted Tesla's reversal decision of rejecting Bitcoin as Tesla payments and cited several environmental concerns.

But the Musk effect isn't just limited to digital assets. His recent 'Baby Shark' tweets sent shares of Samsung Publishing — a shareholder in the producer of the viral YouTube song — to soar as much as 10%.

Why it matters? Musk's use of Twitter has consistently landed him in trouble with the authorities. Recently, the SEC alleged him of violating a 2019 revised settlement agreement twice after he posted tweets about the company's operations before getting them approved by Tesla's lawyers.

2. Former teacher loses $14 billion in 5 months 😮

In one of the biggest fortune slumps in recent times, GSX Techedu owner Larry Chen wiped out nearly $14 billion from his net worth after the company's shares plunged 88% this year amid a range of issues. The stock dropped an additional 4% on Wednesday after Goldman Sachs downgraded the company and its price target estimates.

Since January, the company has been at the centre of China's crackdown on the online education sector. Its weaker-than-expected earnings forecast and the implosion of one of its investors further widened its losses.

In March, President Xi Jinping increased scrutiny of China's education sector, saying after-school tutoring is putting pressure on the students. Consequently, the company decided to shut its pre-school education business for children ages 3-8 and cut almost a third of its staff.

But what about the investor implosion? Bill Hwang’s Archegos Capital Management had built large leveraged positions in GSX using swaps provided by banks like Credit Suisse, Nomura, and Goldman Sachs. But when stocks started falling, it triggered margin calls from global banks, who then sold the stocks in the big block trades. The entire incident cost Archegos $20 billion.

Despite such volatile undertakings, Chen urged his employees to ignore the short term “noise” and focus on long term objectives. The 49-year-old started his journey as a middle-school teacher in a Chinese village before joining New Oriental Education in 1999. He started GSX in 2014.

Why it matters? Despite GSX's falling shares, some analysts expect its stock to recover in the long run as they believe that the company has discovered a “significant market” amid growing demand for online education due to the pandemic.

3. Today’s big deals 🎉

SoftBank plans to invest in Flipkart
SoftBank is in talks with Flipkart to invest $700 million into the Bangalore-based company at a $25-30 billion valuation, just three years after selling its stake to Walmart. The investment is a part of a larger $2 billion funding round that could see participants such as GIC and Qatar Investment Authority, as well as sovereign wealth funds like Abu Dhabi’s ADQ and Canada Pension Plan Investment Board (CPPIB). The proposal comes at a time when big conglomerates like Reliance Industries and Tata Group are making huge bets on India's burgeoning e-commerce industry. Flipkart is also planning to go public in the US by 2022. The Masayoshi Son-led company had first invested $2.5 billion in 2018. If successful, the deal will help the company compete against big players like Amazon, Tata Group, and Reliance’s JioMart.
The biggest SPAC deal yet
William Ackman’s Pershing Square is nearing a $40 billion SPAC deal to take Universal Music public, potentially making it the largest SPAC deal on record. The deal would have an enterprise value of about $42 billion after accounting for the company's debt. It would also grant Pershing Square a 10% stake for about $4 billion, while Tencent Holdings Ltd. — which doubled its stake in the company last year — will now hold a 20% stake. 70% of Universal’s shares will be distributed to its French investor Vivendi SE. The company made €7.4 billion in revenue last year, mostly through music streaming services like Spotify. The world's largest record label is home to artists such as Lady Gaga, Billie Eilish, The Beatles, Queen, Drake, and Taylor Swift.