What Does GameStop Mean for Crypto?
The GameStop incident that recently transpired on the investment market is the culmination of a longstanding conflict between individual investors and hedge funds. Following the event, bitcoin, the symbol of ‘financial decentralization’ was received favorably, but the cryptocurrency investment market also witnessed the same crowd pumping phenomenon seen with GameStop.
GameStop is causing a rebellion of average Joe investors
Driven by free stock investment apps such as Robinhood and low interest rates following the Covid-19 pandemic, the number of individual investors has been increasing rapidly in the US. However, institutions continue to enjoy better access to information and are leading the market, often causing losses to individuals.
The GameStop incident is an expression of the discontent held by individuals against these institutions. The start of the GameStop incident was hedge funds holding short-selling positions on GameStop stocks and then attempting to drive down the stock price. Further, Robinhood, which is mainly used by individual investors, suddenly restricted the selling of GameStop stocks, which raised suspicions that Ronbinhood’s major customer, the hedge fund Citadel, played a role in this decision. This further increased antipathy against institutions among individual investors.
As individual investors acted out their outrage against hedge funds, this resulted in their first victory — the GameStop rally. The explosive rise of the GameStop (GME) stock price was revealed to be the result of a strategy shared on the Reddit community WallStreetBets to respond to the hedge funds’ short selling by inducing a price increase. With the participation of many individual investors, the stock’s price volatility increased resulting in several hedge funds incurring significant losses.
‘Financial Decentralization’ symbol bitcoin is on the rise
The GameStop controversy has amplified voices on Reddit and other online communities saying that the stock market is being controlled by big capital and that individual investors have been sacrificed since 2008. This has led individual investors to rebel against the lack of transparency of the stock market and to flock to bitcoin and other cryptocurrencies as beacons for ‘financial decentralization’.
Bitcoin was born in the early 2000s amid a dispute between institutions and individual investors similar to the GameStop case. The bitcoin white paper was published in October 2008, right before when opposition to the traditional financial markets exploded in the ‘Occupy Wall Street’ protests of 2009.
Following the GameStop event, the hashtag bitcoin was shared on social media such as Twitter. On January 28, Tesla founder and influencer Elon Musk changed his Twitter account description to ‘bitcoin’ and publicly voiced his support for bitcoin. Alexis Ohanian, the co-founder of ‘Reddit’, which sparked the GameStop buying spree, also participated in the bitcoin hashtag. Jack Dorsey, CEO of Twitter and mobile payment service Square, also shared a hashtag with bitcoin on his Twitter account.
What does the GameStop rally mean for the crypto market?
The GameStop incident now goes beyond raising awareness of bitcoin and is impacting the investment market. The crowd pumping phenomenon seen with the GameStop rally can now also be observed on the crypto market. Just like with GameStop, crowd pumping is when an unspecified number of persons on online communities single out a specific asset and collectively maintain or raise its price through investments.
The first cryptocurrency to experience crowd pumping is Dogecoin (DOGE). According to specialized cryptocurrency media outlet Decrypt, Dogecoin experienced a pump and dump starting January 28 when, following SatoshiStreetBets with its 86,500 users, the coin surged 980% only to drop by 60% the next day. Then, the hashtag #DogecoinArmy trended on Twitter and the sudden rise repeated.
Following this, the Ripple (XRP) price climbed above $0.70 on February 1 for the first time in 3 years as a result of calls on communities such as the Telegram groups ‘buy and hold Ripple’ and ‘pump Ripple official’, only to halve again within 4 hours. This phenomenon is being repeated for Polkadot (DOT), Aave (AAVE), StormX (STMX), etc.
Since the trade volume on the cryptocurrency market is lower than with stocks and other financial markets, prices can easily be influenced by communities and other small groups of investors. Given that crowd pumping can again increase price volatility in the future, investors can consider Haru’s products.
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