Dec 29, 2021 7:00 AM

This Was the Year When Finance Jumped the Doge

From GameStop to bored apes, weirdness abounded among meme-loving amateur investors.

A collage with Game Stop and art by Jenny Sharaf.

Last January, a growing group of retail investors congregating on a subreddit called r/wallstreetbets took to the zero-commission trading app Robinhood and bought stock of GameStop en masse. Despite the ailing video game retailer’s dubious fundamentals, they catapulted its price from $17.25 at the beginning of the month to over $500 by January 28. The event sent shockwaves across the world’s trading floors, made headlines, and caused a lot of general bemusement.

Screeds on r/wallstreetbets defined the motive of these investors’ trading: to give a beating to the hedge funds that had been betting against GameStop’s stock. That would happen via a devilish shuffle called a short squeeze: sending a stock’s price so high so swiftly that those shorting it decide it is time to buy it before it soars even more—a rush that in turn forces the price even higher. It worked: Some hedge funds did lose a lot of money, and the craze led Robinhood and similar apps to introduce restrictions on GameStop trading. From high on his Twitter perch, Tesla and SpaceX CEO Elon Musk approvingly posted “Gamestonk!”

But the short squeeze narrative only explains so much. When Lasse Heje Pedersen, a finance professor at Copenhagen Business School, researched the GameStop incident, he noticed something unexpected. A lot of those seemingly crusading investors were not dumping the stock at the end of the ride, as one would expect from predators ready to collect their loot; in fact, they were clinging to their GameStonks. “They didn’t just drive it up and then dump the stock: they were actually holding it for quite a long time,” Pedersen says. “They didn’t seem to be buying it just to hurt somebody else.” What happened in January 2021 was not simply a rebellion against Wall Street—it was something else. Call it, if you like, the rise of meme finance.

Where traditional investors supposedly decide which assets or stocks to trade based on a company’s growth prospects or other market conditions, meme financiers—most of them small-time investors—make their investment on the basis of other considerations, which can vary wildly. A stock or asset might be bought as a sign of allegiance, a way of flagging one’s belonging to a particular group; or they might buy it because it has a funny name or as part of an absurdist caper, or simply to partake in some kind of online flash mob. To an external observer, the activity looks irrational and preposterous. It might be—or it might simply be that different people have different priorities.

How did it come to this? If you follow Pedersen’s theory, it all starts with social networks. Fill them with a handful of what Pedersen in a recent paper calls “fanatics”—people who, for whatever reason, believe something to be absolutely valuable, despite contrary evidence. Make that something a stock or asset with a memorable, odd, or otherwise whimsical attribute—for instance, an association with sweet memories of first-generation consoles. Then wait for an influencer to throw their weight behind it—someone like the wealthiest (or second wealthiest, depending on the day) person on Earth—and the zany meme will catch on like wildfire among the social network’s wider public.

None of that would matter if it all remained confined to the realm of social media. Except the past few years have witnessed the explosion of zero-commission trading apps that allow easy access to stock markets—and suddenly people can follow through on their love for the meme. US Securities and Exchange Commission chair Gary Gensler has often thundered against how Robinhood and its ilk have “gamified” investment—through the inclusion of social media-like features, jocular push notifications, and confetti animations in the best Vegas slot-machine tradition. But the gamification goes beyond garish visuals: It has to do with how easy to use and how cheap these trading apps are (until someone goes all in, with potentially ruinous consequences)—so usable that they allow people to idle away time by trading instead of, say, playing Candy Crush or strumming on a guitar. “This is just a hobby, in many ways: It’s a little bit of money,” says Mel Stanfill, an assistant professor specialized in games and interactive media at the University of Central Florida. “But at scale, small amounts of money become huge amounts of money that can move the stock market.”

Mix a financial meme with a handy app and you get a GameStop moment. Were people on r/wallstreetbets convinced of the potential of GameStop’s business? The “fanatics” among them—people such as Keith Gill (aka DeepFuckingValue), one of the stock’s most vocal advocates—did indeed seem to think that the retailer was on the verge of an upset comeback. Were the people on r/wallstreetbets trying to punish the hedge funds? Some certainly were (and some of their less savory cohorts on Telegram’s QAnon-themed groups couched that attack in vile anti-Semitic terms). But many others were just in for the fun, writing about how they wanted to “seee the moon” and “love this stock”—their objective was to keep pumping GameStop’s price up, and keep playing with their online friends.

Obviously, the memes came home to roost dramatically this year, when millions of people across the globe, forced into lockdown by the pandemic, were bored and looking for a pastime. On top of that, the US government issued $1,200 stimulus checks, providing the necessary cash fodder for many amateur traders. Yet the memification of finance had been in the making for a while. It was already rearing its head in 2020, with the improbable success of lesser stocks like Kodak or Hertz, backed in a similar manner through trading on upstart apps. But, really, you can take it all the way back to cryptocurrency.

Well before people on r/wallstreetbets declared their love for the meme stock, people on other subreddits, as well as on Telegram and Twitter, had been shouting their misspelled motto, “HODL.” That is, “hold,” as in buy a certain cryptocurrency—from Bitcoin all the way down to the latest scam-coin—and keep it in your wallet in the hope that its value shoots up again, to the Moon. If spending a grand to hoard the stock of a brick-and-mortar chain store during a pandemic takes a lot of confidence—or a lot of nihilism—the leap of faith required to invest savings in a novelty currency whose price is determined simply by its popularity online is mind-boggling. And yet, straight after the GameStop frenzy came the Dogecoin frenzy, with the Robinhood brigade pumping a parody cryptocurrency, its symbol a meme dog, from $0.0041 on January 1 to $0.50 in May. Elon Musk, who took a liking for Dogecoin, kept attention levels high with a barrage of Doge-laden tweets and a shout-out to Dogecoin on Saturday Night Live. In the second quarter of 2021, Robinhood earned $144 million in revenue from Dogecoin trades. (Robinhood makes money from the market makers that place the actual trading orders, via a controversial mechanism called payment for order flow.)

GameStop had been a warning shot—Dogecoin showed that meme finance is here to stay, all the more so as cryptocurrency has now entered the mainstream. A whole new breed of unabashedly self-styled “meme-coins” have emerged: generic crypto tokens that often have no technical edge on first-wave assets like Bitcoin or Ethereum but have swapped those cryptocurrencies’ ominous and technically sound vibe for wacky logos and playful names.

After Doge, all bets are off. Cryptocurrency enthusiasts—and companies like Visa— have splurged enormous sums on non-fungible tokens hypothetically associated with digital artwork, or with cartoons of bored apes, pixelated characters, fat penguins, and pet rocks. As metaverse hype reaches a fever pitch, plots of virtual land in juiced-up video games have sold for millions of dollars. Last month, a blockchain-based video game called Axie Infinity launched a cryptocurrency exchange that allows users to trade in-game currency with cryptocurrency and then state-backed money. All of this was partly driven by the playful YOLO mindset that had made GameStop happen in the first place, partly exploited by opportunists happy to capitalize on the market’s restlessness, and finally inspired by the conceit that in order to sit at the same Clubhouse or Twitter Space table with a bunch of billionaires, you’d better buy an ape like the one they have in their profile pictures.

Still, the mindset underpinning meme finance should not be underestimated. Gensler’s accusation of gamification can be looked at from a different angle. By treating investing like a game, meme financiers are attempting to imply something else: Finance has always been a game. “Shorting stocks, in a way, is already gamified,” Stanfill says. “It’s just gamified within a set of rules that have been normalized in the broader economic system.”

If you subscribe to that fairly populist view, r/wallstreetbets and Robinhood—or Axie Infinity, for that matter—can credibly claim to be venues for “financial education.” After all, they are just pocket-sized versions of a bigger game, one that is opaque, legally sanctioned, and run behind closed doors by largely unaccountable, brash traders who play with the fortunes and livelihoods of companies and their employees, and even the global economy. Advocates of meme finance would say that it is more honest than standard finance about its unserious nature, and that meme financiers are rule-bound by software and blockchain, whereas the Wall Street set is fluent in loopholes and backslapping.

Keep scratching, and you’ll get to the very essence of what meme finance is about: an indictment of traditional expertise in all its manifestation, a shunning of received knowledge, a rejection of anything perceived as mainstream—and therefore corrupt. It is the same antiestablishment sentiment that has worried mainstream politicians for quite some time now, and which in its more extreme versions has descended into conspiracist and “do your own research” thinking. More specifically, meme finance is a challenge to the current way of giving value to things. “Is [GameStop’s stock] worth 200+ dollars? That's for you to decide based on your own value system,” a redditor going by RoeJaz wrote at the peak of the GameStop rally. “For me, there is a lot of value in knowing that having a few shares of this company is causing billionaires and hedge funds to suffer.”

Amid the memes and jokes and financial frenzy, what some of the people trading GameStop and Dogecoin were actually saying was that they did not care about or believe in stockbrokers’ careful analyses of a company’s fundamentals anymore, and that the system is so fraudulent and meaningless that a comedy coin can be worth a lot of money. This mirrors the way many buying NFTs are implying that they are sick and tired of monied collectors and critics deciding what is art and what it is not. (Even if auction houses and art galleries were typically quick to jump on the bandwagon.) The people investing in virtual land are seceding from a property market they see as inaccessible to the average person. And, of course, cryptocurrency fans believe state-issued money is a con. To all those established desirable things—art, money, stocks, real estate—meme financiers juxtapose their alternative assets, hoping that enough people follow to make them actually become valuable.

It is paradoxical that this seemingly antiestablishment movement ended up choosing multibillionaire Elon Musk as its figurehead, but it is also fitting. Beyond his immense wealth, Musk’s claim to fame is his ability to send rockets into orbit, a kind of “hard expertise” meme financers would contrast with the hollow credentialism of hedge funders and government bureaucrats. He hobnobs with self-styled anti-elite figures like his former business partner Peter Thiel and podcaster Joe Rogan. Musk loves Bitcoin, with caveats. His ex-girlfriend, pop singer Grimes, supposedly dedicated a song to him and titled it, of all things, “Player of Games.” Musk is open about his contempt for titles, job descriptions, and corporate lingo—appointing himself TechnoKing of Tesla, given that CEO was also a “made-up title.” If you need a nihilist leader, Elon Musk is your guy.

Whether Musk is fully onboard with the movement is anybody’s guess. Moreover, it is hard to tell whether the intellectual framework of meme finance is simply a convenient narrative spun by the wealthy speculators and cryptocurrency grandees who jumped on various bandwagons hoping to make a killing. But regardless of the sincerity or the intensity of those beliefs, 2021’s mark on finance is indelible. Blame Reddit, Robinhood, or Elon Musk, but meme finance has shown that markets can be polluted by large groups of people whose reasons for investing might go beyond the bottom line.

This is something that cannot be ignored, and you can bet finance professionals and regulators alike have taken notice. Wall Street firms are already devising ways of integrating meme-stock movements into their investment strategies. Among US lawmakers, conversations about reining in trading apps are already raging; cryptocurrency is also in the crosshairs. Soon we will know whether meme finance will be tamed by new rules and restrictions—or will have reshaped finance for good.