Meme stocks, cryptocurrencies, and ‘get-rich-quick’ schemes
In what has been dubbed a "meme stock frenzy," the online finance community took the world by storm.
What exactly is a meme stock?
To comprehend the concept of a meme stock, one must first comprehend the meme. A meme is a hilarious thought that spreads throughout the cultural zeitgeist. This is common in internet forums as a static image, fashion, stories, phrases, and so on. A tweet can also become a meme. Thus, a meme stock is one that has increased in value not because of how the company is functioning, but because of a meme that has gone viral, causing many people to invest.
Those unfamiliar with memes and online culture were taken aback when the stock of GameStop, an American electronics retailer, unexpectedly rose. Its stock price rose by hundreds of dollars in a matter of days. Young investors and techies from all around the world rushed to get a piece of the action.
The oddest aspect of this entire situation is that GameStop was on the verge of bankruptcy before its stock exploded. The average American was taken aback when they learned of the rise in GameStop stock. The corporation had been closing hundreds of storefronts around the country, most likely because many gamers shop online. No one saw this coming unless they were aware of the online discussion.
Where does cryptocurrency fit into all of this?
Soon after the GameStop debacle, another meme stock arose. The value of Dogecoin, a cryptocurrency similar to Bitcoin, increased by 200%.
It makes no difference whether GameStop or Dogecoin are worth that amount. In fact, most meme stocks' valuations often do not correspond to price swings. The market's volatility (in terms of meme stocks and cryptocurrencies) is totally attributable to a completely new financial area.
People are learning about new and inventive methods to invest their money through platforms like TikTok, Reddit, and Robinhood, where stock market dialogue is taking place in diverse corners of the internet.
Traders on Reddit, a social news and conversation website, have a huge influence on what new investors do with their money. For example, many young people opted to invest in Dogecoin after reading about it on Reddit forums. Because anyone can post anything on Reddit, using it as a replacement for financial advice is problematic (and potentially harmful). This means that unverified and untrustworthy news can spread at an incredible rate with the touch of a mouse.
Why are meme stocks important?
What these young investors might not have comprehended at the time of their investment was that Dogecoin was launched as a joke. It was intended as a satirical piece of performance art to comment on the unpredictability of cryptocurrencies (and the chance of it seeing returns), but it turned out to be a meme in and of itself. It had even appropriated a popular meme as its emblem (the face of the Shiba Inu dog from the 'doge' meme). That's quite meta (and clever) of them.
The most memorable meme, though, is what happened next. Following the discovery of Dogecoin, Reddit users who follow the crypto discussion boards flocked to Robinhood. Robinhood is an app for stock trading and investing that allows users to purchase and sell cryptocurrency. What the Dogecoin creators did not expect was for their joke currency to be regarded as a legitimate prospect by many.
Perhaps the fact that cryptocurrency is so easily available is contributing to its growing appeal. Anyone with a smart device and an internet connection can take part. The question is whether this is a step in the right direction or a step back. New investors interested in the digital evolution of trade see this as a chance to seize power from Wall Street, the City of London, and the traditional financial system. However, the danger here is that the redistributed authority will fall into the hands of inexperienced and unqualified individuals.
What do meme stocks and cryptocurrencies portend for the future of finance?
All meme stocks have one thing in common: they promote hazardous investment tactics for people who don't have much to invest in the first place. Many people have claimed that meme stocks are nothing more than 'get-rich-quick' schemes. They offer enormous returns on tiny investments (which are exceedingly doubtful). However, these tiny investments are not so small to rookie investors, which is why such schemes can be harmful.
Some people who acquired Dogecoin before all the fanfare ended up making enough money. And, of course, the creators of cryptocurrencies such as Dogecoin, Bitcoin, and Ethereum have. However, too much enthusiasm causes stock prices to fluctuate. When the buzz fades, so does the money. This is untrustworthy and, as previously stated, risky for the typical trader.
So many people have succumbed to the meme stock frenzy. If crypto isn't just a passing fad and remains around (and it appears that culture is trending in that way), there will be more casualties. Many people may experience returns, and cryptocurrency trading may even produce a one-time millionaire. However, without the appropriate advice, this will not be the case for the average trader. As a result, you must consult with your financial advisor.
How can you be ready?
Those who seek financial guidance and investing recommendations on social media miss out on the personalised experience that Expat Beleggen gives. We are not all in the same financial situation, so how can a one-size-fits-all solution work for everyone? The answer is no, it will not. If you are interested in these types of investments, your financial consultant can conduct risk assessments and develop a strategy for you.