Cryptocurrencies, more so than most other things, are only valuable because of a shared agreement that they are valuable. Their value is a product of digital handshakes over millions of transactions firming up that consensus. For bitcoin, the trust that it has worth has turned more valuable in the past several months; it’s been on a tear.
The (very bizarre) question is whether a new avenue of applying blind trust by brigading trashcan-level stocks and turning them into memes could threaten the appeal of cryptocurrencies for retail investors.
Over the past several days, we’ve seen stocks ranging from GameStop, Blockbuster and AMC make unjustifiable gains as a result of Reddit users in the r/WallStreetBets subreddit triggering a stampede toward stocks being heavily shorted by institutional investors. That in turn has led to a short squeeze troubling hedge funds, causing the price of a stock worth around $5 for the majority of 2020 to swell well above $300 today. In some ways it’s just an Occupy Wall Street protest being held on Robinhood; in other ways it’s a complete rejection of the hypothesis of efficient markets and a reinvention of institutional trust.
Bitcoin holds fundamental differences from publicly traded stocks, many of which might matter an awful lot to those betting on the coin as a currency of the future. But to retail investors who aren’t hardcore proponents, I’d imagine FOMO was one of the most intriguing pulls into the cryptocurrency space. But if Bitcoin’s purpose for the time being is merely a “store of value,” I think there’s a world where individual investors might be evolving their interests elsewhere.
Bitcoin and other cryptocurrencies haven’t seen notable price movement in recent days — Bitcoin is down around 6% in the past 24 hours, a hiccup as far as crypto moves go — but after a few weeks hovering well above $30,000 and peeking above $40,000, the currency seems poised to dip below the $30,000 range soon unless its trend reverses course.
All that said, Bitcoin is certainly an entity of a different scale than all of these meme stocks bundled together with a market cap above $560 billion and a 24-hour trading volume of $56 billion. Bitcoin has seen stratospheric growth over the past few months so barring an outsized crash, it’s perhaps unlikely that retail investors are going to fully abandon it in favor of buying up crusty old shares of Blockbuster stock. That said …
It’s cheaper to trade these meme stocks and easier for retail investors to get leverage via options. In short, for investors looking to have a good time or shoot the moon, meme stocks are a more fun place to be than crypto is.
The main thing to consider is what happens if GameStop, for no reason at all, becomes a long-term store of value? When investors collectively begin placing blind trust in more financial assets for the long haul, does that devalue blind trust itself and the mammoth entities that had more of a monopoly on it? Most investors aren’t expecting this to happen, but stocks like Tesla are beginning to live comfortably at ridiculous premiums that analysts can’t understand. Tesla and GameStop are very different beasts, but if anything I think institutions have a better grasp of GameStop’s rise.
The foil to all of this is whether this pandemonium births some regulatory backlash, a possibility that of course does not exist in quite the same way for cryptocurrencies from a central governance standpoint. TD Ameritrade and Schwab are already limiting trades of some of these meme stocks today and I think there is certainly a universe in which the SEC aims to take a pot shot at this saga by means of promoting market sanity and I am much more confident that there’s a world where Reddit is pushed to at least temporarily ban r/WallStreetBets for some unclear reason.