Investing Behavior Illuminates Online Communities
September 16, 2021
Retail investing surged in 2020 and continued into 2021. As individual investors’ interest in the markets grew, they began to seek out information on companies and investment insight from peers. Online communities gained following, providing not only discussion forums, but also a means for education on companies and market movements. Most notably, some Reddit forums have been popular platforms for individual investors to connect over investment ideas and questions, with some forums gaining millions of followers worldwide in January 2021 alone.1 This connectivity aided in the meme stock following, as it allowed a multitude of users to collaborate over shared ideals.
The Growing Impact of Retail Investing
The meme stock was previously unheard of before early 2021. Since the beginning of the year, we have seen meme stock trading take off. Measuring collective sentiment in investing has been done by institutions and hedge funds for several years now with tech and artificial intelligence. Recently we have seen hyperactivity by individual investors in collaborating over these platforms to share ideas in a greater way around these handful of stocks that grabbed the market’s attention this year.
Companies with high short interest, rising stock options, heightened attention on social media and price targets that seem unrelated to research typically characterize meme stocks.2 Investor interest around these names has grown, resulting in investors turning to online forums as a space to gather and discuss the stocks. Communities have gained traction within Reddit, rallying behind these companies and providing research. Members seek to support these names that otherwise have been heavily shorted by hedge funds looking to profit from their downfall and pending bankruptcy. Two of the more noteworthy meme stocks this year that benefited from these community movements are GameStop (GME) and AMC Theaters (AMC).
Similar in name, meme coins have risen in the growing crypto space. Dogecoin, named after a meme of a Shiba Inu, began as a parody designed to serve no practical function and has since gained a mass following. The price of this coin tends to fluctuate based on its mentions in social media. More recently, Mark Cuban announced that Dogecoin would be accepted for Mavericks tickets and merchandise. Elon Musk tweeted a faux “Dogue” (i.e. Vogue) magazine cover, and referred to himself as the Doge Father when announcing his SNL appearance. These celebrity social media statements caused a surge in Dogecoin, driving its price up 20% in April.3 Some people tend to invest in these types of coins with the hope that others will pile in and drive up the price, rather than for the coin’s actual value. The influence on price from social media and celebrity mentions, with little to no utility for some coins, can make these types of coins relatively volatile.
Evolution of Communities Around Investor Interests
The communities centering on meme stocks have grown into a large and powerful online presence. The more recent purchasing of GME shares had driven up the price from $17.37 in mid-January to a peak of $347.51 by the end of January and the price remains elevated; a similar story for AMC, whose shares were valued at around $2.20 in mid-January up to a peak of $62.55 in the beginning of June.4 GME’s market cap recently increased to the largest in the Russell 2000 Index at $11.2B, which moved GME into the Russell 1000 Index in mid-June,5 and a further increase moved GME into the S&P 400 in August.6 Recently, there has even been discussion of a possible move into the S&P 500 later this year.7
Members of these communities provide research on a daily basis, by voluntarily (noting that they are not financial professionals) analyzing these stocks in order to provide insight to fundamentals and market movements for the community. As the communities have grown, new jargon has evolved within discussions and is used in common conversation among members. Members encourage each other to HODL (hold on for dear life) their positions, despite price movements. Those who are committed to buying and holding regardless of drastic price movements claim to have “diamond hands” – unshakeable hold despite uncertain or volatile price movements. As these communities are open to the public, there has been some speculation by Reddit members and those at Coindesk over whether or not hedge funds have infiltrated forums looking to manipulate retail investors and spread “FUD” (fear, uncertainty and doubt).8 When investors tried to move into meme stocks earlier this year, many faced complications within their trading platforms. Easily accessible platforms, like Robinhood and TD Ameritrade, that position themselves as user-friendly quickly shut down trading, halted trade requests and even closed out some positions of meme stocks without warning to investors.9 Individual investors saw this as a violation to their trading freedom and abilities, and thus sought out investments that could not be so freely controlled by financial institutions. Decentralized finance (DeFi) apps gained even more attention following this event, furthering the crypto adoption among investors.
Communities in the crypto space have since evolved as investors try to better understand DeFi apps, this newer asset class, and its price movements. Online education often found on YouTube focusing on Bitcoin, Cardano, Ripple and Ethereum, to name a few, continues to gain traction. Many YouTube crypto educators provide daily commentary and carry a significant following, some with hundreds of thousands of subscribers; for example, CryptosRUs and Crypto Banter, two popular YouTube crypto education channels, each have over 300,000 subscribers.10 They seek to track the price and historic trends of these coins to help crypto investors understand the market and make informed decisions about crypto investments.
With increasing digital connectivity, investors have greater access to each other on a global scale as online communities grow in reach. People are finding creative ways of connecting over these common topics of interest and distributing insight and research. These mass behaviors in investing could continue to appear occasionally as conversations and communities develop; this suggests the importance of paying attention to investor sentiment.
1 Source: Reddit & Washington Post Jan. 2021 (https://www.washingtonpost.com/technology/2021/01/29/wallstreetbets-reddit-gamestop/)
2 High short interest: Short interest is the number of shares that have been sold short, but have not yet been covered or closed out; high short interest indicates investors are pessimistic (Source: Investopedia)
3 Source: CNBC Apr. 2021 (https://www.cnbc.com/2021/04/28/dogecoin-price-surges-after-tweets-from-elon-musk-and-mark-cuban.html)
4 Source: Yahoo Finance
5 Source: Barron’s June 2021 (https://www.barrons.com/articles/gamestop-amc-russell-1000-51623883459)
6 Source; Seeking Alpha July 2021 (https://seekingalpha.com/news/3720168-gamestop-makes-a-move-into-midcap-400-index-bel-fuse-and-spok-slip-on-index-exits)
7 Source: Wall Street Journal Sept. 1, 2021 (https://www.wsj.com/articles/gamestop-stocks-possible-return-to-s-p-500-in-hands-of-anonymous-committee-11630494001)
8 Source: Coindesk Feb 2021 (https://www.coindesk.com/podcasts/coindesk-podcast-network/hedge-funds-infiltrated-reddit-wallstreetbets)
9 Source: CNBC Jan 2021 (https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html)
10 Source: YouTube
Please note that VanEck may offer investments products that invest in the asset class(es) discussed herein.
Russell 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.
S&P MidCap 400 Index refers to a benchmark index comprised of 400 companies that broadly represent companies with midrange market capitalization between $3.3 billion and $11.8 billion.
The S&P 500 Index: a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.
- Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
- An investment in cryptocurrency is not suitable or desirable for all investors.
- Cryptocurrency has limited operating history or performance.
- Fees and expenses associated with a cryptocurrency investment may be substantial.
There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies.
Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
All investing is subject to risk, including the possible loss of the money you invest.. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
January 21, 2022
January 20, 2022
January 14, 2022
January 13, 2022
January 13, 2022
January 21, 2022
Ford's EV push generates positive investor sentiment while sentiment towards healthcare and "meme"-related stocks declines. SoFI Technologies and Vir Biotechnology join the BUZZ Index.
January 20, 2022
M&A activity in the video game industry is, we believe, helping to drive growth both for the acquiring companies and broader industry.
January 14, 2022
What's in store for investors in the video gaming industry in 2022? We discuss potential breakout areas including mobile gaming and metaverse platforms.
January 13, 2022
VanEck Digital Transformation ETF (DAPP) seeks to provide investors exposure to companies involved in the digital transformation of the global economy.
January 13, 2022
Learn more about the thematic investment strategy that provides investors with exposure to U.S. large cap stocks with the highest degree of positive social sentiment and bullish perception.