Original title: SpaceX Could Get Dangerously Systemic

Original author: Quoth The Raven

Original compilation: Peggy, BlockBeats

Editor's note: After SpaceX's after-hours market value exceeded US$3 trillion, this article raised a more pointed question than "how much is it worth?": When a company can increase its market value by hundreds of billions of dollars in one day under the combined effect of limited circulation, options trading and market sentiment, is the capital market still engaged in price discovery, or has it become a self-reinforcing speculative machine?

The author’s core judgment does not lie in denying SpaceX’s commercial prospects. SpaceX may still be one of the most important space infrastructure companies in the world, and it may also have extremely high long-term imagination. But what this article is really focused on is something else: If stock prices are driven primarily by call option buying, market maker hedging, momentum money chasing, and passive capital allocation, then valuations stop just "reflecting value" and start "creating value." Price increases themselves become a new reason to be bullish, while fundamentals are pushed to the back burner.

The gamma squeeze mentioned repeatedly in the article (a feedback loop in which option market makers are forced to buy stocks due to hedging, thereby further pushing up the stock price) is the key to understanding this article. Similar mechanisms have played out over the past few years with Tesla, certain meme stocks, and high-momentum tech stocks. The author is worried that once SpaceX replicates this path and continues to be pushed up due to the strength of its own narrative, circulation restrictions and Musk's personal influence, it may evolve from a highly valued stock to a systemic variable in the entire market.

The more dangerous part is indexing and passive investing. When a company's market capitalization becomes large enough, it is included in major indices and passively held by ETFs, pension funds, retirement accounts, sovereign funds and institutional portfolios. At this time, bubbles are no longer just a venture for a few traders, but will enter the long-term asset allocation of ordinary investors. The higher it rises, the less able the market is to get around it; and the more unable it is to get around it, the more likely it is that funds will continue to flow to it.

Therefore, what this article really discusses is not whether SpaceX will become a US$5 trillion or US$10 trillion company, but a structural paradox of modern capital markets: When the market mechanism itself can amplify narratives, leverage, and liquidity enough to overwhelm fundamentals, can the so-called "price discovery" still be established? SpaceX is just an extreme case, but the problem it exposes may be more common - in today's U.S. stock market, systemic risks sometimes do not start from bad companies, but from the most popular companies that cannot be ignored.

The following is the original text:

"Things will only get weirder, weirder, weirder, and finally, it will get weird to a point where people have to start talking about how weird it is."

——Terence McKenna

Over the past few years, I've been asking: How outrageous do things have to get before we admit that the stock market is fundamentally broken? After seeing SpaceX surge after the market opened today, I think the answer is obvious: the market has been broken for a long time. The real question is just how ridiculous it has to be for others to notice.

SpaceX’s market capitalization topped $3 trillion in after-hours trading. This means that its valuation has exceeded that of Amazon and Microsoft. Microsoft generates hundreds of billions of dollars in revenue every year, with annual profits exceeding $100 billion. Amazon has annual revenue of more than $700 billion and profits in the tens of billions. Now, SpaceX is being given a higher valuation than they were.

SpaceX’s relatively limited circulation makes it an ideal target for a manipulative short squeeze. Its shares were trading near $230 a share toward the end of after-hours trading. In one day, a company that still loses billions of dollars a year added an estimated $650 billion to its market value out of thin air.

$650 billion. Not a year. Not ten years. Just one day. And tomorrow, SpaceX options will begin trading. As I predicted earlier, I would bet that it could get further short squeezed.

This is what’s really disturbing. Because I've been writing for years about what happens to markets when options activity starts to become the primary driver of price action.

We've seen this playbook before: call buyers flood in, market makers are forced to hedge, stocks rise, momentum traders chase higher, more calls are bought, and the cycle continues to reinforce itself.

As of 10:30 a.m. ET, the first day of trading in SpaceX options, more than 500,000 contracts had been traded, corresponding to a notional size of about 50 million shares.

The $380 call option expiring in two days - the deepest out-of-the-money contract currently available - was the second most popular strike among calls expiring this week and was the hottest strike in early trading.

At a certain point, price no longer measures value, but begins to create value. The valuation itself became bullish. The company's industry attributes and fundamentals become completely irrelevant. At this point, the market officially starts doing things it's not supposed to do.

That's why tomorrow matters. Options will begin trading because of a company that has exhibited extremely strong short squeeze characteristics. A similar situation has happened to its "sister company".

I have been writing for the past few years that modern markets are increasingly driven by mechanical forces rather than fundamental analysis. Tomorrow may prove to be one of the clearest cases of this judgment.

My expectation is that the introduction of SPCX options trading will not improve price discovery but will further distort it. If aggressive call buying occurs, the hedging behavior of market makers could create a reflexive feedback loop similar to the one that drove the spectacular, but completely illogical, moves in Tesla and other momentum stocks over the past decade.

At that point, price movements will have nothing to do with business fundamentals and everything to do with market structure. If SpaceX does go through the kind of gamma short squeeze that many traders are publicly anticipating, I think it will be further evidence that modern markets have become useless and extremely dangerous to the average person's retirement accounts.

Because the market is supposed to allocate capital and promote price discovery. It was supposed to connect valuations – no matter how imperfectly – to economic reality. The market should not become a self-reinforcing feedback machine where mechanical capital flows alone can add hundreds of billions or even trillions of dollars to a company's market value.

The question is not whether SpaceX is a good company. The question is whether the market structure surrounding it is healthy.

Because, if a company can become more valuable than Microsoft and Amazon, and possibly more than NVIDIA tomorrow, with revenue and profits that are only a fraction of Microsoft and Amazon, then where are the limiting factors? What's to stop it from becoming a $5 trillion company? What's to stop it from becoming a $10 trillion company?

Image source: Zero Hedge Twitter

If the same options-driven feedback loop that drove Tesla's surge after late 2019 were here, then these numbers wouldn't be as unthinkable as they once were. And this is what no one wants to discuss.

Everyone wants to debate how high SpaceX can go. What no one wants to discuss is what will happen if it does get there.

If SpaceX were worth $10 trillion, that would mean a company worth about one-third of U.S. GDP. It will be large enough to dominate passive indexes, retirement accounts, ETFs, pensions and institutional portfolios. Its rise and fall will increasingly determine how the market as a whole performs -- and all the while, it's not even profitable yet. It will become the greatest and most dangerous hype machine in human history.

Think again of what this means for Elon Musk. If SpaceX were valued at $10 trillion, Musk's personal wealth would be in a range never seen in modern history. His net worth is already equivalent to 40% of all currency in circulation.

Image source: Zero Hedge

And he's not just richer than the next richest person. He may soon be about ten times as rich as the second richest man.

The gap between Musk and other billionaires may exceed the entire wealth of some developed countries. At that point, we are no longer talking about wealth creation in the ordinary sense.

What would happen if SpaceX’s market cap really hit $28 trillion due to some kind of gamma short squeeze glitch? That's roughly equivalent to a year's worth of U.S. economic output. Will people finally start questioning the market then? Or will you continue to find new reasons to rationalize it all?

Because this is how every bubble in history has worked. Each new high is taken as evidence that the previous high was too low. Every round of speculative mania is packaged as innovation – just ask so-called “innovation expert” Cathie Wood. Every short squeeze is interpreted as genius. Every warning will become evidence that "doubters don't understand the future."

The most amazing thing about SpaceX breaking through $3 trillion is not the valuation itself.

But if it continues to rise, it will become too big to be ignored anymore. At some point, we have to stop talking about SpaceX itself and start talking about the system that created it: a speculative machine that has been completely divorced from its original function.

The danger is that once a company reaches a large enough scale, the distortion itself becomes a systemic risk. Every passive fund must hold it. Every major index relies on it. Pensions, retirement accounts, sovereign wealth funds, insurance companies and institutional investment portfolios will increasingly be exposed to the same transactions. The higher it rises, the more inevitable it becomes.

This is the part that no one really understands.

If SpaceX eventually reaches $10 trillion due to a combination of hype, narrative, mechanical money flows, and options-driven feedback loops, it will no longer be just a story about SpaceX. It becomes the entire market. Its movements will increasingly determine the performance of indexes, ETFs and retirement accounts throughout the financial system. The market will effectively become a referendum on a single stock.

This is how bubbles become systemic risks. Not when it's small enough to be laughed at, but when it's big enough that everyone is forced to participate. The same mechanisms that drive prices higher today will ultimately create unstable conditions tomorrow. When trillions of dollars of wealth are tied up in a valuation that's never truly anchored to fundamentals, even a mild pullback can have consequences far beyond the stock itself.

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