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GME and AMC surge to new highs on the strength of memes, as crypto linkages emerge.
Individual retail traders have used equities like the movie theatre company AMC Entertainment and video game retailer GameStop (GME) this year to express their dissatisfaction with the so-called “free market.”
These meme stocks have enjoyed tremendous gains this year, beginning in late January and fueled by sentiment from Reddit forums such as r/Wallstreetbets. Year to date, GameStop has returned 1,069.80 percent, while AMC has returned 1,919.34 percent. At this pace, they should have yearly returns of 2,440 percent and 4,378 percent, respectively.
Around the same time, BTC broke through the $50,000 barrier for the first time, thanks to the now-famous GME short squeeze and Tesla’s $1.5 billion purchase of BTC. While BTC’s price momentum continued to hit an all-time high of $64,889 on April 14, it collapsed dramatically to near-pre-surge levels of roughly $35,000 at the time of writing.
Correlation of GameStop/AMC with BTC unclear
On June 1, the AMC stock began to rise once more, more than tripling in value in a single day. In the mid-day trading session on June 2, the stock soared from almost $30 to a high of $65.57. BTC also had a little comeback from sub-$35,000 levels on the same day, reaching the $38,600 mark on June 3. Because meme stocks and cryptocurrencies sometimes trade simply on market mood and have appeared to correlate in their upward trajectory in the past, it’s crucial to examine the link between the two, if any exists at all.
Martin Gaspar, research analyst at CrossTower — a digital assets exchange — said, “There doesn’t seem to be a large correlation between GME/AMC stock price and Bitcoin price. In the short squeeze that we saw earlier this year, the rise of the price of both GameStop and BTC is likely to have been coincidental.”
About the prospects of AMC in the near future, he added, “AMC could very well be the new GameStop. Stock forums and memes online are showing that many traders seem to believe in AMC, despite its soaring price relative to fundamentals.”
Due to the recent meme frenzy for AMC, the company even got an upgrade in credit rating. According to analysts at S&P Global Ratings, the firm has a lower chance of defaulting after it leverages on the meme frenzy by raising cash in the equity markets. It sold 11.55 million shares at an average price of $50.85. Even though the company’s bonds are classified in the most speculative category of bonds, quite close to companies that are defaulting or at near defaulting, S&P upgraded its rating to CCC+, which is two tiers above its previous levels and seven tiers below investment grade — i.e., BBB-.
Adding to the correlation aspect, Gaspar also commented, “We have also seen more recently that BTC’s price has languished, while AMC has soared, further underscoring this relationship.”
The existence of the correlation between the GME/AMC stocks is often difficult to concretely prove due to the inherently volatile nature of the cryptocurrency markets. Johnny Lyu, CEO of KuCoin — a cryptocurrency exchange — told Cointelegraph:
“There are only similarities between these assets for traders who know how to benefit from high-risk trades, which includes Bitcoin, under pressure from regulation and influencers and assets that allegedly had no real prospects. Fluctuations in the price of both Bitcoin and stock memes are very familiar to the old-timers of the crypto market — pump-and-dump in action.”
On June 2, AMC stock soared 95.22 percent to $62.55. The share price plunged 17.92 percent after the news of the 11.55-million-share transaction. This, paired with the volatility observed in GameStop earlier this year, shows that owing to missing fundamentals and information propagating on Reddit, any situation is possible with these companies.
However, Jim Cramer, presenter of CNBC’s Mad Money, has hinted that now would be a good time to invest in GameStop and AMC, but he cautioned that “if you’ve ridden them up from much lower levels, take a little off the table.” These tales are constantly subject to revision.”
Do Kwon, co-founder of Terra — a protocol for fiat pegged stablecoins — elaborated on the relationship between Reddit and these stocks, telling Cointelegraph, “Both [GME and AMC] reflect the retail trader’s dismay with the current HFT [high-frequency trading] incumbents and asymmetries of the TradFi world.” He added further, “It wouldn’t be surprising to see this continually happen to other assets in the future, especially as social media and the way people organize and interact online evolve.”
When it comes to equities with well-established connections with Bitcoin, MicroStrategy (MSTR) comes to mind first owing to the significant Bitcoin reserves it keeps, as well as the positive position of its CEO and creator, Michael Saylor. The corporation owns 92,079 BTC worth more than $3.4 billion, or 0.43 percent of the token’s maximum supply of 21 million tokens.
The company was one of the first publicly listed firms to include Bitcoin on its balance sheet, and it was also seen as a proxy for BTC by investors in traditional financial markets. Lyu went on to say, “The shares of companies that own Bitcoin are dependent on its value.” MicroStrategy lost up to 10% during the week; Bitcoin lost the same amount. It’s okay when you have 90,000 BTC.”
MicroStrategy is, in fact, featured in JPMorgan’s Crypto Exposure Basket (CEB), a debt instrument portfolio comprised of 11 unevenly dispersed equities. These stocks are either issued by firms that have BTC on their books as a treasury asset or are indirectly tied to the cryptocurrency.
Aside from MicroStrategy, which accounts for 20% of the total allocation, the CEB also owns shares of Square, PayPal, Nvidia Corporation, Riot Blockchain, Advanced Micro Devices, Taiwan Semiconductor Manufacturing Company Ltd, Intercontinental Exchange, CME Group, Overstock.com, and Silvergate Capital Corporation. Gaspar went on to discuss the CEB’s performance in contrast to BTC:
“JP Morgan’s Cryptocurrency Exposure Basket has likely performed better than BTC, given that this basket includes companies that are not pure-play cryptocurrency companies. This insulates investors from the movements in BTC. Nvidia, one of the companies included in this basket, is currently at all-time highs, while BTC is down roughly 45%.”
Meme stock phenomenon to drive meme coins
The influence of the meme stock phenomena on the flagship cryptocurrency in BTC remains unknown, since some of the fluctuations appear to be coincidental. However, as Gaspar mentioned, it might be a harbinger for another meme coin rally, similar to the performance of Dogecoin (DOGE) and Shiba Inu (SHIB) earlier in May.
What’s important is that the communities that drove the meme stocks to such levels are also behind the stock surges for GameStop and AMC. According to Kwon, “What’s interesting is that the fundamentals for GameStop, AMC and DOGE are all subpar within their relative markets, but they represent a new kind of social Schelling point that is a manifestation of investor dismay with current limits in the current system.”
However, as witnessed in the case of Dogecoin, a meme cryptocurrency maintained by a dedicated and decentralised community of online supporters develops out of being a meme at a certain point.
Once these meme stocks are saturated with demand, it is quite possible that some of this demand will migrate into cryptocurrencies, notably meme coins. Retail traders flock to trading platforms like Robinhood in particular, wanting to earn a fast profit while having a good time with their buddies.