The Return of Meme Investing: Will a Crypto Rally in 2024 Pave the Way for a Meme Resurgence?

Internet culture can be a wild and creative place, but there’s been no online trend that’s resonated in the world of finance as strongly as the rise of memes and their transformative effect on stock market investing.

In January 2021, meme investing became global news as a mobilized motley crew of social media-based retail investors generated a GameStop short squeeze, which saw the stock rally 1,500% in just two weeks.

Despite GME retracing from its sharp 2021 peak, the stock is still sitting in a relatively comfortable position today, with a market capitalization just shy of $5 billion.

Inspired by GameStop’s astronomical rally, retail investors have been targeting meme-based opportunities in stocks, cryptocurrencies, and NFTs in an attempt to make significant short-term gains.

The 2021 surge in meme investing saw some success derived from GameStop and AMC stocks, as well as cryptocurrencies such as Dogecoin and Shiba Inu. This frenetic high-volume investing landscape occurred against the backdrop of a cryptocurrency rally in the wake of Bitcoin’s cyclical halving event, which took place in 2020 and inspired a bull run that grew the portfolios of thousands of retail investors around this time.

Today, with Bitcoin’s next halving event scheduled for April this year, could we be staring at another rally that will supercharge the meme investing landscape?

Signs of Life in Meme Markets

There’s mounting evidence that meme investing is beginning to regain momentum in the wake of a series of economic headwinds that have impacted retail investor spending over the past two years.

Using Roundhill’s MEME ETF (NYSEARCA:MEME) as an example, the exchange-traded fund has grown more than 38% over the past year, posting almost 20% growth over the past three months alone.

The appeal of meme investing can be found in its sentiment-driven high-risk structure. As investors unite on social media to target a stock, they can purchase their stock in significantly high volumes to leverage growth without having to look at the company’s underlying fundamentals. This paves the way for stocks to be targeted based on factors like sentimental value (GameStop, AMC) or tributes to online jokes (Dogecoin).

“Recent growth in GameStop and Dogecoin indicates a short-term surge in meme stock investing among retail investors. However, it's essential to recognize that this trend is speculative,” explained Maxim Manturov, head of investment research at Freedom Finance Europe.

“It's crucial to note that while meme investments may yield significant profits, they also come with substantial risks due to their high volatility and speculative nature. Investors should carefully assess their risk tolerance and investment goals before engaging in this type of investing.”

In 2023, meme markets comfortably outperformed the S&P 500, with the year’s biggest winners arriving in the form of fintech firm SoFi, software company Palantir, and used car retailer Carvana–with the latter recording 1,000% growth over the calendar year.

This investing phenomenon isn’t limited to Wall Street and crypto, either. In South Korea, young investors have been rejecting blue-chip stocks like Samsung and Hyundai to buy into high-risk meme stocks in science and technology sectors in the hopes of faster returns.

Internet rumors about growth plans for stocks like Duksung, a Suwon-based textiles company, saw the stock triple in value over two weeks in mid-2023 before a 50% fall in a matter of days.

JLK, an AI-based medical data company, rallied to a brief 1,000% peak during the rally between January and September before a similar 50% decline to close the year.

According to Hwang Sei-woon, a senior researcher at the Korea Capital Market Institute, the appeal of higher returns ‘drives impatient young investors’, who would have started their trading journeys around the time of the post-pandemic boom period that began in 2020.

The Rise of Short-Termism

This short-term mindset among retail investors has given rise to the era of fast food investing. While successful traditional investing relies on the in-depth research of stock fundamentals and the development of a sustainable investment strategy, meme investing revolves around staying switched on and alert to social media guidance.

One of the biggest issues that this causes is the volatility, and varying degrees of success that socially mobilized investing can bring.

Using GameStop’s stock as an example, the firm is currently trading at 81% below its peak on January 29th, 2021. This means that many retail investors who bought the stock during its rapid rise would have lost out despite the stock settling higher than its values before the short squeeze.

In addition to this, AMC stock has shed 87% of its value in the past 12 months alone, signifying that short-term attitudes can lead to stocks being abandoned for new memes at a moment’s notice.

The fickle nature of meme investors has become increasingly apparent in recent weeks throughout the cryptocurrency landscape.

The winter months drew added retail attention to meme coins launched on Solana’s network, but following December all-time highs for small-cap coins like Dogwifhat (WIF), Bonk (BONK), and AnaloS (ANALOS), the coins have tumbled 76%, 70%, and 92% respectively in a matter of weeks.

Learning Lessons From the Past

The recent approval of a Bitcoin Spot ETF on Wall Street has helped to add fuel to investor optimism for an upcoming cryptocurrency market rally in 2024 and 2025. These market movements throughout the crypto landscape could see more investors seeking to supplement their portfolio growth and renewed levels of market interest to commit more resources to meme investing.

According to Reuters reporters Saqib Iqbal Ahmed and Laura Matthews, retail investors never lost their appetite for meme investing in the wake of the 2021 GameStop short squeeze, but more so, their approaches became increasingly cautious as the market sell-offs of 2022 hit portfolios.

In understanding the difference between a company’s stock price and its fundamentals, investors may be capable of finding a better balance between the risk and opportunities offered by meme investing. With cryptocurrency markets set to take center stage once again in 2024, we can be sure that meme investing won’t be far from the limelight.