Amidst a mid-May sell-off of cryptocurrencies that demolished more than $400 billion from the market, so-called "meme stocks" like GameStop
The relationship between these two investment opportunities popular among individual investors, and Reddit posters, has continued into the beginning of June. As of June 1, Bitcoin and Ethereum remain in the red, while GameStop and AMC Entertainment
The mid-May sell-off of crypto was reportedly triggered by an announcement from the People's Bank of China banning banks from accepting or using cryptocurrencies as payment. Afterward, crypto saw a slight boost when Elon Musk, the CEO of Tesla
According to most investment experts, the shifts in the cryptocurrency market and meme stock prices cannot be extricated from this sort of online discourse. In May, GameStop saw its share price go above $200 for the first time since March 19, a high point that many consider a clear sign of the influence of individual investors on sites like Reddit and Twitter.
"Once it goes over $200 the buzz starts," Dennis Dick, head of markets structure and proprietary trader at Bright Trading LLC, told Reuters. "You can "100% peg it to social media."
Activity on r/CryptoCurrency saw an 82% jump in May, while r/WallStreetBets comment volumes dropped 25%, suggesting that either the selloff towards the end of May wasn't enough to make a dent in the numbers, that a sell-off could be as much of a boost to comment volume as a buying boom, or that posters believe the sell-off won't last.
While there are many possible explanations, the final option currently seems to be the most likely: posters are still talking about crypto because they still want to buy crypto.
Quiver Quantitative founder James Kardatzke told the Financial Times that retail traders on Reddit are more interested in investing "in a narrative" than choosing an investment that makes long-term sense. According to Kardatzke, "crypto is having a lot of volatility and more interesting storylines," compared to GameStop and the rest of the meme stocks.
Unfortunately, the risk of this attraction to volatile investments is only worsened by the fact that many of those who are the most likely to invest in the crypto market is also the most at risk of a financial emergency. According to a May 24 note by a JPMorgan analyst, "more financially vulnerable demographic groups have larger relative exposure" to cryptocurrencies.
The "financially vulnerable" largely means younger people, millennials and below. According to the JPMorgan note, this group owned roughly a third of the crypto market in 2019. According to data gathered by an April Motley Fool survey, 47% of GenZers and 39% of millennials own cryptocurrency.
