Hokk Finance

What is MEME?

A meme is a picture, video, or piece of text, typically humorous in nature, that is quickly reproduced and distributed by internet users, often with minor alterations. A meme is an idea (that can’t be stopped), as well as a behavior or style that spreads from person to person within a society through imitation. A meme token is a currency built on the foundations of a fun and creative brand, with the extra benefit of having the functionality of genuine money that you can use every day.

What Is a Meme Stock, and How Does It Work?

“Meme stock” refers to stock that gains sudden hype through social media and online platforms, triggering unusually high trading volumes. Through social media sites like Reddit, Twitter, and Facebook, online communities can cultivate colossal enthusiasm around a particular stock. Because the skyrocketing price increase is rarely the result of the company or stock’s solid performance, these price spikes are usually followed by a crash.

Meme stock groups have developed a dictionary of market terms and informal slang such as “diamond hands” (someone with a high-risk tolerance for high-volatility stocks), “tendies” (earnings, a humorous reference to how many ‘chicken tenders’ you could buy with the stocks), and “to the moon” (the anticipation of an extraordinary increase in the value of the stocks).

Important Takeaways

Meme stocks are shares of a company that have gained a significant online following on social media platforms. Users on the subreddit r/wallstreetbets play an instrumental part in increasing the popularity of meme stocks. GameStop (GME) is widely considered to be the first meme stock, with its price rising by as much as 100x in a matter of months thanks to a spectacular short squeeze orchestrated by members of its meme community.

Meme Stocks: An Overview

Chat rooms and discussion boards devoted to investing and promoting stocks evolved as a result of the internet. These sites helped promote and drive up the values of so-called dotcom stocks in the late 1990s and early 2000s, a bubble that burst in spectacular fashion. Meme stocks, on the other hand, didn’t really take off until 2020, thanks to the Reddit site r/wallstreetbets. Unlike its antecedents and certain other investing message boards, WallStreetBets became known for its distinct and occasionally irreverent tone.

On r/wallstreetbets, users collaborate to select target stocks to invest in and promote. Unlike online pump-and-dump scams designed to mislead unsuspecting investors, meme stock promotion largely entails buying and holding with “strong hands,” even after the company’s price increases.

GameStop: The First Meme Stock

An activist investor called Ryan Cohen posted on the subreddit in August 2020, explaining why shares of GameStop Corp. (GME), a brick-and-mortar video game store, could be a solid option. This was taken up by The Roaring Kitty (real name Keith Gill) on r/wallstreetbets, who made a viral video that led to GME’s stock rising from $5 to $50 per share.

Hill claimed in the video that the stock had some of the greatest short interest in the market, owing mostly to hedge funds’ short bets—and that these funds would be forced to cover their positions in the event of a huge short squeeze. At the end of the year, GME’s stock was priced at around $20, a 4x raise from the time at which Cohen and Gill had published their respective post and video.

The short squeeze that Roaring Kitty had predicted began in earnest in January 2021, when the price of GME shares soared to about $500 amid a frenzy of short-covering and panic buying. A few hedge funds were the principal victims of the squeeze, with some being forced to close due to large losses. As a result, the meme stock took on a Robin Hood identity, with the small retail investor monopolizing over the rich Wall Street elite.

People stranded at home during COVID-19 lockdowns paired with zero-commission brokerage applications like Robinhood, which boosted meme stock activity even further. At times, Robinhood experienced a surge in meme stock trading volume, resulting in several trade delays, outages, and platform breakdowns. This sparked indignation among users, as well as regulatory fines and class action lawsuits.

Other Meme Stocks

Though GameStop was the first successful meme stock, it certainly wasn’t the last. AMC Entertainment Holdings, Inc. (AMC), a movie theater company that suffered declining profits as a result of the COVID-19 pandemic, and BlackBerry Limited (BB), an obsolete smartphone manufacturer, were among them. Both saw their stock prices rise significantly in a short period of time. Indeed, as these firms became well-known meme stocks, members of r/wallstreetbets and similar sites began to appreciate the irony of witnessing such storied corporations rise from the ashes of the stock market.