Meme Stocks vs. Bitcoin: Could Gamestop Impact Crypto?

Cryptocurrencies derive their worth primarily from a widespread, collective belief in their value, more than many other assets. This value is established through countless digital transactions that reinforce this shared understanding and build consensus. Bitcoin, in particular, has experienced a significant increase in perceived value over recent months, demonstrating substantial growth.

A rather unusual question arises: could the emergence of a new approach to investing – rallying around low-performing stocks and transforming them into popular trends – potentially diminish the attractiveness of cryptocurrencies to individual investors?

In recent days, we have observed stocks like GameStop, Blockbuster, and AMC experiencing unwarranted price increases due to activity from users on the r/WallStreetBets subreddit. These users initiated a surge in buying heavily shorted stocks held by institutional investors. This has resulted in a short squeeze that is creating difficulties for hedge funds, causing a stock that traded around $5 for much of 2020 to climb to over $300. It can be viewed as a modern iteration of the Occupy Wall Street movement, facilitated through platforms like Robinhood, and also as a challenge to the concept of efficient markets and a re-evaluation of established trust in financial institutions.

While Bitcoin possesses key distinctions from traditional stocks, many of which are important to those who view it as the currency of the future, the fear of missing out (FOMO) has likely been a major factor drawing retail investors into the cryptocurrency market. However, if Bitcoin’s primary function is currently as a “store of value,” it’s conceivable that individual investors may begin to explore alternative investment opportunities.

Bitcoin and other cryptocurrencies have not exhibited significant price fluctuations recently – Bitcoin has decreased by approximately 6% in the last 24 hours, which is a relatively minor movement within the crypto market. However, after a period of trading well above $30,000 and briefly surpassing $40,000, the currency appears likely to fall below the $30,000 level unless its current trajectory changes.

Despite this, Bitcoin remains substantially larger than the combined meme stock market, with a market capitalization exceeding $560 billion and a 24-hour trading volume of $56 billion. Given its considerable growth in recent months, a dramatic collapse is unlikely, and it’s improbable that retail investors will completely abandon Bitcoin in favor of purchasing shares in companies like Blockbuster. Nevertheless…

Trading these meme stocks is less expensive and provides retail investors with easier access to leverage through options. Essentially, for investors seeking excitement or the potential for substantial gains, meme stocks currently offer a more appealing environment than cryptocurrencies.

A crucial consideration is the potential outcome if a stock like GameStop unexpectedly establishes itself as a long-term store of value. If investors collectively start placing faith in a wider range of financial assets for the long term, could this diminish the value of trust itself, and the dominance of established entities that previously held a monopoly on it? While most investors do not anticipate this scenario, stocks like Tesla are already trading at high premiums that defy conventional analysis. Although Tesla and GameStop are distinct, institutions likely have a better understanding of the factors driving GameStop’s recent surge.

Conversely, this situation could trigger a regulatory response, a possibility that is less pronounced for cryptocurrencies due to their decentralized governance structure. Trading platforms like TD Ameritrade and Schwab are already restricting trades of certain meme stocks, and it is plausible that the SEC may intervene to restore market stability. Furthermore, there is a possibility that Reddit could temporarily suspend the r/WallStreetBets subreddit for unspecified reasons.