For a brief while over the past 10 days most stock markets in the world were rattled by an anti-establishment mania where a set of traders sharing information on reddit’s wallstreetbets forum decided to send the price of Gamestop (a traditional retailer struggling to survive the pandemic and e-commerce/game streaming revolution) to the moon. Similar attempts were made to send the price of AMC to the moon using Zero-trading fee apps like Robinhood and using leveraged stocks. However, short this rally lasted such an attempt met with massive resistance from clearing houses that are used by exchanges to settle the trade on NYSE. An unusual volume of trade on the stock definitely caused panic amongst hedge fund managers who had publicly taken bets against the stock in what is known as the put option – designed to profit when a stock reaches a price on its way down, and usually the profit is many times the invested amount. When the stock rose, these hedge funds had to take in billions of dollars of loss to cover their positions on the street, and definitely wipe some sweat, blood and tears off their face. Frontrunning such massive crowd manipulated stock prices – a once in a lifetime happening- found its challenges quickly amongst regulators, stock brokerage houses and clearing houses not to mention exchanges which immediately ceased trade in these manipulated stocks – causing massive losses to those who had wildly purchased the stocks of Gamestop in a frenzy.
Definitely while Gamestop is a cultural icon that needs to fundamentally be restored, in the long run business fundamentals such as price, earnings, projected growth, etc. will definitely determine the price of the asset rather than the euphoria of the crowd. Hopefully, with the stock having reached such highs hopefully gamestop will be able to rejig its business and reinvest some of the recent earnings from this euphoric capital infusion from public markets to really show some growth over the long term.
However, just on the tail of such massive market manipulation is the arrival of Elon musks single worded tweets pushing up bitcoin and “Doge” coin a coin that has risen more than 3000% in the last 1 year. While bitcoin’s properties of supply, value, technology and mining are subject to significant research amongst financial institutions, academics and technologists alike the euphoria surrounding “doge”coin needs some serious validation and thought. a meme based coin that sets its supply at several billion coins, that has lasted for a few years, and rewards miners 10000 dogecoins per block mined possibly needs some deeper thought amongst investors about the principles of its value? other than pure speculation. The question people should ask is “what is the utility?” of such a token – if there is one…
On the overall, speculation can trump value creation in the short term, but in the long-run sound technology backed by value will create the required market conditions for a utility driven increase in value.