There was a huge merger in 2021: the combination of popular culture and modern finance. Tom Brady and Matt Damon were suddenly shillings for cryptocurrency exchanges.
Digital tokens that started off as elaborate pranks represented tens of billions of dollars of paper wealth. And cartoon pictures of apes were selling for millions of dollars on something called the nonfungible token market, which almost no one had heard of in the long-ago days of 2020.
This wasn’t always a friendly merger. Small individual investors teamed up to buy shares of GameStop Corp. and AMC Entertainment Holdings Inc. with the express intention of bankrupting the hedge funds that were betting against the companies. Many Wall Street pros were as flummoxed as anyone else by the rise of new crypto markets.
Everyone seemed to want in, from high school kids trading on their phones during Zoom school to older folks who missed out on dot-com-era riches and were determined not to let another bubble pass them by without claiming a piece of it. It’s difficult to know exactly how many people turned themselves into traders.
Yet as one indicator, verified users of cryptocurrency exchange Coinbase alone grew to 73 million by September, from 32 million at the beginning of 2019.
Warnings from sober-minded financial advisers to avoid this type of stuff appear to have gone unheeded. The percentage of the effluent using self-managed accounts for at least part of their investments jumped to 69% in 2021, from 35% in 2015, according to a report from research firm Cerulli Associates.
What, pray do tell, are they doing with those accounts? “Investors are most likely to concentrate their attention on more volatile offerings, including securities gathering widespread media attention, such as GameStop, AMC, or cryptocurrencies, or within niche themes or sectors in which the investor perceives an opportunity for outsized growth in the short to medium term,” according to Cerulli.
That’s all the more remarkable considering how easy it was to make money the passive way: A boring S&P 500 index fund is up about 25% so far this year.
Not so long ago, the Certified Serious People of finance were worried that too many investors had migrated to index funds and that this would distort the markets. How cute. These days we wonder if there will ever be a systemic financial risk from joke dog-themed crypto tokens such as Dogecoin.
It’s easy to chalk all this up to an excess of the same emotions that have fueled markets since forever: greed and fear. (In this case, the fear of missing out.) That’s certainly a huge part of the story.
Yet there’s another emotion at work here: fascination. The crypto and NFT space have swiftly evolved into a bottomless rabbit hole of innovation and intellectual intrigue.
For meme-stock traders, it’s a fascination with the complexities of market plumbing and how professional traders work the pipes. You aren’t figuring out only what AMC’s business model is, but also whether your team can outfox the money managers on the other side.
The phrase “proof of work”—the computational effort required to run blockchain networks like Bitcoin’s—can also be applied to the motivations of this new breed of traders.
Riches appear there for the taking if you work hard enough, read enough online white papers, listen to enough podcasts, watch enough YouTube videos, study enough social media, learn technical chart patterns, or simply refresh the trading app on your phone frequently enough that you hit the buy button at the right time.
It all revolves around something funny that happened when the coronavirus forced the humans of this planet to isolate themselves from one another: New virtual communities were formed.
In this hybrid of financial and popular culture, these communities meet in Reddit forums and under Twitter hashtags, in Discord and Slack chats, or even simple text message threads.
I have a group of friends who for years have met on Friday nights to play poker. Recently they instead met over Zoom with an NFT expert to discuss parlaying some of their crypto token riches into monetized JPEG files.
It’s easy to spot the most enthusiastic members of these communities. The crypto true believers, like Tom Brady, have laser beams shooting from their eyes in their social media pictures.
“Degenerates” of the WallStreetBets Reddit group—11.3 million strong and growing—have some version of a cartoon kid in a banker’s suit and sunglasses.
You have to look closely at the whimsical apes that are showing up on people’s online profiles: It could be a member of the “Ape Army” marching to war for AMC stock or a member of the Bored Ape Yacht Club NFT project sporting one of this year’s hottest digital status symbols. Continue reading with Bloombergbuisness...