9/20/2023 0 Comments Gamestop hold the line![]() ![]() Carefully consider a range of information ![]() Investors should check the yields of the US three-month Treasury bills to shape their expectations of potential low-risk returns.Ģ. ![]() Such claims are usually too good to be true, since there are no risk-free assets that can offer high returns. If an asset or stablecoin claims to be low risk, but investors are bragging about enormous returns made in no time, this is a red flag. Beware when something sounds too good to be true But even these factors have not deterred amateur investors from seeking returns in crypto markets.Īside from waiting for governments to tighten crypto regulation – as is planned in Singapore, for example – there are a few steps that retail investors can take to protect themselves from meme-stock mania.ġ. With inflation climbing amid an energy and cost of living crisis, the cryptocurrency market has struggled to recover quickly from its most recent collapse, with the market leader Bitcoin losing 70% of its value since November 2021. The recent collapse of Terra Luna, for example, saw individual investors lose their savings after investing in the algorithmic stablecoin. Crypto markets are volatile and lack sufficient regulation to make them more stable. These investors then often simply feed each other’s biases by sharing information that confirms this desirable outcome.Īnd there is even more risk involved in investing in cryptocurrencies versus equities. When reading investment forums, amateur investors are often searching for confirmation of their own decision to invest in a meme stock. Social media often feeds both overconfidence and confirmation biases – probably the most common cognitive biases in business and finance. But if the price starts falling, it does not matter how many of these hashtags are in the comments on a subreddit, our research shows the wider market reaction to the price decline will outweigh any encouragement made on investment forums. When online commenters are trying to hype a stock, they will often add hashtags such as “to the moon” and HODL (a misspelling of “Hold” – as in hold the stock rather than sell – that has become an acronym for hold on for dear life in the online trading world). Investors should learn a lesson from the GameStop story. Author's own chart using data from Bloomberg and Reddit. Online discussion of GameStop versus investment returns for the stock taken at 30 minute intervals. What we found sends a warning signal to all meme stock investors: online chatter pushes prices up but can’t save investors when asset values start to collapse. Recent research I carried out with colleagues aimed to understand the role of Reddit in the GameStop share rally involved a textual analysis of 10.8 million comments on r/WallStreetBets and high-frequency GameStop prices. And while these new decentralised finance assets are very different to stocks, the way sentiment is formed about these assets on social media tends to be the same. Meme stock rallies have also boosted cryptocurrency products, such as stablecoins and non-fungible tokens – basically any assets for which hype has been built online. You’ve probably heard about other instances of assets popularised on social media of late, including cinema chain AMC and US retailer Bed Bath & Beyond. One of the more notable recent examples of a meme stock, retailer GameStop, saw its stock soar by more than 10,600% in 2021 following discussions by individual investors on r/WallStreetBets – a popular subreddit on the Reddit social media platform. The term meme stock was traditionally used to describe any share that receives a lot of attention on social media. And with recessions looming around the world, the danger is becoming even more acute. But while it might look like a fun game, there are real risks to investing in stocks and other financial products popularised on social media. Recent rallies in stocks popularised on social media have attracted increasing numbers of investors looking to these so-called “meme stocks” for quick returns. ![]()
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