What is Meme Stock?
Meme stocks are stocks that went “viral” on social media platforms and discussion forums, which resulted in a skyrocketing increase in their market prices. Excessive media attention usually causes the excessive trading of these meme stocks. However, financial experts believe that the rise in market price is not because of the company’s performance but also due to the social media hype. In a short period after retail traders rave about a particular meme stock on social media, prices drastically increase and become overvalued.
The popularity of meme stocks can be traced to the rise in retail investing. The stock trading mechanism had changed through the years, thus allowing more accessible ways to trade individual stocks. Consequently, more and more people can participate in trade surges causing meme stock prices to increase substantially.
In the previous months, the meme stocks that became notable include: GameStop, AMC, and BlackBerry. The three company stocks became hype on the Reddit forum resulting in a whopping price increase last January 27, 2021. Despite that all three companies are not performing well, because of the hype, AMC’s stock increased by ten times, and Blackberry’s stocks tripled. Surprisingly, GameStop increased by hundreds of dollars in just a short period. By mid-2021, the market capitalisation of Blackberry increased by 141%, GameStop by 1421%, and AMC rose steeply at 7296%.
Meme stocks are an example of short squeeze trading. In this kind of trading method, investors scout for temporary positions to cover, then buy them simultaneously. Consequently, the share price will increase, making other investors accelerate their attempts to buy. This technique in trading will cause the market price to spiral higher in a frenzy.
What is Cryptocurrency?
Cryptocurrency is a kind of digital currency that exists electronically. User accounts of this digital currency are made secure by solid encryption called “cryptography.” Transactions made using cryptocurrency are stored in a public ledger known as the “blockchain.” They are decentralised, meaning they are not controlled, distributed, or owned by any central banks or government. Instead, the “blockchains” regulating cryptocurrencies run across millions of servers in a different computer, probably worldwide.
The cryptocurrency rose to popularity upon the introduction of Bitcoin back in 2009. Its creator an anonymous, Satoshi Nakamoto (who remains anonymous up to the present), released an open-source software about Bitcoin white paper. Its market value started at $0 and, to date, increased steeply at $32,870.789.
Traders and investors are banking on this emerging digital currency in different ways. Statistics showed profitable returns of investments, enticing more and more people to jump into this trend. One way to earn is through crypto mining. Miners compete by cracking mathematical codes using powerful software. Once the miners become successful, they are granted newly-minted cryptocurrency. The second is through buying and holding of cryptocurrencies, also known as HODL. Experts recommend this strategy for beginners and traders testing the cryptocurrency market. Neophyte investors buy cryptocurrencies, store them in a digital wallet, and sell them after some time, and this might include speculation and the trader’s luck that the market prices will shoot up.
Lastly, is through trading of cryptocurrencies, this is the opposite version of HODL. Traders buy cryptocurrencies on trusted trading platforms. Then after applying a rigorous method of trading, they immediately sell it. This kind of cryptocurrency investment takes advantage of the cryptocurrency’s market volatility. Though this method can be risky, profit gains are possible if the market price is studied wisely. Suggested kinds of trading include day trading, swing trading, and arbitrage trading.
Meme stocks and cryptocurrencies were pioneered by investors and traders who desire to look for an alternative source of value. The financial world is rapidly changing and is revolutionising through digitisation. But should neophyte and experienced traders immediately jump into both trends? What can be their considerations in choosing their niche?
Risk taker or Risk-averse?
Investors who like to gamble, speculate and try on their luck are reasonably fit for meme stocks and cryptocurrency. The market for both financial investments is speculative, volatile, and relies heavily on the internet trend. Market prices of companies popular in meme stock highly depend on what is viral on social media. Investors can already see the stability of crypto prices as big companies are already banking on them. However, the trending cryptocurrency news still affects its market price. So, if the trader is the risk-averse type, neither cryptocurrency nor meme stock can be suitable.
If a trader wants to diversify his portfolio, then investing in cryptocurrency is highly suggested. The stability of cryptocurrencies’ market price is already tethered to its continuous popularity. Numerous countries are already actively participating in cryptocurrency trading trends. Big tech companies and businesses are also expressing their support and interest in this emerging digital currency. Thus, this means that cryptocurrencies do not rise and fall in conjunction with the stock market. Financial experts, brokers, and software developers are already investing in platforms like Bitcoin App to guide traders in learning the cryptocurrency market.
One advantage of meme stocks is they operate like regular stocks. Despite the internet hype at a specific company, investors can still study the company’s financial status, future directions, and performance before investing. A buildup in a company subject to meme stocks may lead to actual growth of the company, thus a win-win situation for all investors.