Icahn’s Big Short & the FTX Colonic

Carl Icahn
Is Carl Icahn’s GameStop short the denouement of the meme stock phenomenon? Photo: Clint Spaulding/Patrick McMullan/Getty Images
William D. Cohan
November 27, 2022

Well, apparently Carl Icahn has been celebrating the holiday season by going for the jugular and shorting GameStop into oblivion. According to Bloomberg, the longtime billionaire investor has been building a “large bet” against the video game retailer since early 2021, when the stock peaked in value. And he has the capital to play ball. After a year of cascading market corrections, one wonders, is this the denouement of the meme stonk phenomenon?

Icahn, now 86, has proved himself to be an investing force of nature. He rarely gets it wrong, although he certainly has—see his major blunder with TWA back in the day. But mostly Carl has had a series of big wins, including Netflix, TimeWarner and Herbalife, essentially by making contrarian bets that others would never think of making. His GameStop short seems to be yet another example of his impeccable timing to short the stock of the company at its most meme-stocky peak. The irony is, of course, exquisite. Early in the pandemic, shorting the loser stock killed off Gabe Plotkin, the founder of Melvin Capital. Why has Carl been able to cash in on his GameStop short while Plotkin, making a similar trade, went down the tubes? 

The most straightforward explanation, of course, comes down to timing. Plotkin made his short at the beginning of the pandemic when GameStop, a mostly brick-and-mortar chain, looked like a sure goner. Who was going to go out to a store to buy video games when the very same thing could be obtained at home via an Internet download, especially since the company was already not doing so well? The answer was nearly nobody. Plotkin was right. But he still lost, as I noted last month in my conversation with S3’s Bob Sloan, because he had misread the technicals and made himself and his short a relatively easy mark for a short squeeze, just as hedge fund manager Bill Ackman had done a decade earlier in Herbalife for both Icahn and Dan Loeb. This time, GameStop became a so-called “meme stock,” the focus of retail investors going to town and buying the stock, knowing that it could force Plotkin’s hand, and it did. 

By contrast, Icahn didn’t pounce on GameStop until after the GameStop meme stockers had made their move and their money and had successfully driven Plotkin from the playing field. In other words, the savvy Icahn made his move when GameStop was at, or near, its most absurd highs. The stock has lost roughly 50 percent of its value in the past year, during which time Icahn has been shorting it all the way to the bank. The company still has a market value of around $8 billion, which means that it still has a lot of value to lose, assuming markets work efficiently and logically, which of course they don’t always do as Plotkin discovered. As usual, the right answer is you rarely win by messing with Carl Icahn, who has a net worth these days of around $24 billion, or so.

A Madoff or a Neumann?

Traditional finance, or TradFi, is taking a well-deserved victory lap in the wake of the collapse of FTX, the fall of Sam Bankman-Fried, and the fact that Bitcoin is down around 70 percent in the last year. It’s not quite, “I told you so” but it’s “I told you so”-adjacent. 

Perhaps cryptocurrencies, such as Bitcoin, will take a path similar to what occurred with the first iteration of the Internet back in the late 1990s, which was a version of the bloom coming off the rose but the rose growing back stronger and more vibrant than ever. Once much of the speculative excess had been driven out of Internet 1.0, subsequent versions of the Internet thrived, as did the companies most closely associated with the second coming of the Internet and digital communications, such as Apple, Google and Microsoft and Amazon. Lots of money was to be made by those who understood that the Internet was a real thing, despite a bunch of early absurd claims. 

I can easily envision something similar with cryptocurrencies, once the ridiculous speculation is cleared away, which is in the process of happening. So let’s be careful not to dance yet on the graves of cryptocurrencies. That doesn’t mean there was not a significant amount of speculative excess built into the world of digital currencies that is still being slowly but surely eliminated. (To be sure there are some absurd speculators who refuse to give up the ghost; that nincompoop Cathie Wood just re-upped her prediction that Bitcoin would be worth $1 million per coin by 2030. BTC is trading at around $16,000 per coin at the moment, so ya know, that is beyond ridiculous.) I can easily envision a world where a few cryptocurrencies, such as Bitcoin, Ethereum and Solana, are useful, not as a way to speculate, but in the not too distant future as a way to buy and to sell goods and services digitally and meaningfully. But as a way to speculate for speculation’s sake, I would hope the dagger has been shoved into the heart of that movement, which never made any sense to me from the start. 

Whatever the case, the excess and the speculation must be wrung out of the system before the future of digital currencies becomes clear. I think that is in the process of happening and we will all slowly but surely reap the benefits as use cases for crypto begin to emerge from the detritus of the crypto speculation. That’s why I think that the demise of S.B.F. and FTX will end up being a healthy event for the crypto markets, just as the departure of Pets.com, and other absurd 1.0 iterations of the Internet, were healthy for its long-term viability. Time will tell, of course, whether S.B.F. was a scammer, or just immature. 

If he’s lucky, he won’t end up in prison somewhere, like Bernie Madoff or Elizabeth Holmes, and may be able to make a comeback like Adam Neumann, who remains a billionaire, despite driving WeWork into the ground, and who has just picked up an absurd $350 million, at a valuation of more than $1 billion, in Flow, his supposed rethink of the residential real-estate market. It was a16z’s largest single investment in a start-up. The answer is not clear yet but am sure it’s something that S.B.F., once the richest person in the world under 30, and his Stanford Law School professor parents, are contemplating bigtime.