The outgoing year has enriched the investment world with an unprecedented symbiosis of mass culture and the latest financial technologies. And now almost everyone has tried the role of a trader, and Wall Street professionals feel more than ever the competition from private and sometimes very well-organized players. The reviewer reached this conclusion. Bloomberg Michael Regan summing up the year.
Just 12 months ago, no one had heard of the non-fungible token (NFT) market, and already in 2021, images of funny monkeys flew out of auctions for millions of dollars. The industry that developed on the blockchain platform instantly reached a capitalization of $48.9 billion with a daily trading volume of several billion dollars.
And billionaire Elon Musk, supermodel Kate Moss, movie actress and designer Paris Hilton, rappers Eminem and Snoop Dogg, as well as many other celebrities, showed interest in a new tool to capitalize on intellectual property, creativity, and simply the social status.
Rice. 1. Top 10 NFT– capitalization projects. A fountain – Coingecko
Literally everyone has started trading cryptocurrencies: from students doing business straight into zoom seminars to more mature laymen who missed out on the rapid growth of dot-com and don’t want to miss out on another get-rich-quick-and-easy opportunity in a new burgeoning bubble. . On just one crypto exchange, Coinbase, the number of verified users increased from 32 million accounts in early 2019 to 73 million as of September 2021.
Another clear indicator of the stock trading craze, the share of brokerage accounts actively used for self-management of capital, has risen from 35% in 2015 to 69% in 2021, according to Cerulli Associates, an analytics firm.
“Investors are likely to focus on more volatile instruments, including high-profile stocks like GameStop, AMC, and cryptocurrencies. In addition, they may be interested in niche topics or sectors where they see opportunities to outperform growth in the short and medium term,” notes Cerulli Associates.
If you think for a moment about the pundits’ discussion of the threat to financial stability posed by Dogecoin, which was initially joking, it’s easy to believe that the world has gone mad. However, the behavior of individual investors and the markets as a whole is still determined by two main emotions: fear and greed. They only acquired new shades.
It’s not scary to lose, it’s scary not to win
The classic investor fear of losing money has been replaced by another phobia: the fear of not having time to make money. This phenomenon also received its name: FOMO (from the English fear of missing out). – “fear of failure” And it’s not just cryptocurrencies, but also meme stocks like AMC Entertainment Holdings, GameStop or Tesla, real estate and many other assets.
The new generation of investors in the concept of “stock market crash” only sees an excellent opportunity to buy cheaper, because the same bitcoin fell in 2018 by 80% only to set more and more new records in the following years. Also, there are many more ways to enter the market with minimal deposits and almost zero fees.
Rice. 2. Over the last 10 years, the share of private traders in the US stock market has more than doubled. A fountain – Bloomberg Intelligence
Cryptocurrency trading takes place 24/7, with private traders successfully competing with professional financial analysts through their social media, instant messaging and YouTube channels. The latter have to study the world of cryptocurrencies to “not look like idiots” in front of their clients, as one of them admitted to the CNBC channel.
Edmund Sching, chief investment officer at BNP Paribas Wealth Management, identified several factors fueling people’s interest in trading:
- stimulating measures of the main central banks and governments of the world;
- $5.4 trillion in excess savings compared to what people were spending before the pandemic;
- wealth gap between generations.
For today’s youth, the “study hard, work hard, save and multiply with compound interest” model no longer seems unambiguously attractive. Your imagination is excited by the prospect of a successful purchase of bitcoin or altcoin, which in a few months will allow you to pay off your student loan. And they can be understood, because the total “student debt” in the United States has already exceeded one trillion dollars.
The behavior of modern investors reminds Bloomberg observers of historian Henry William Brands’ description of the California gold rush: then the Protestant ethic of hard work was supplanted by the idea of getting rich quick. That is why today no one takes seriously the warnings from regulators about the high risk of investing in crypto assets. According to experts, the cure for FOMO syndrome could be an increase in interest rates, which will once again draw investors’ attention towards more reliable and traditional investments.
Fascinated by cryptocurrencies
The modern cryptocurrency and NFT market, in addition to fear and greed, evokes another strong emotion: admiration. This is a whole new world of innovation. Each newcomer who enters builds confidence: if you approach the matter carefully, read a lot of reports, listen to competent podcasts, study technical analysis, and also regularly update your apps, you can become fabulously rich.
The coronavirus, which has confined people at home, has formed new virtual communities and people have become addicted to cryptocurrencies and NFTs instead of playing poker on Sundays. One of these “interest clubs,” the WallStreetBets Reddit group, has 11.3 million users.
And nothing is as fascinating as the ability to create value out of nothing. In fact, the value of Bored Ape Yacht Club NFT or Crypto Pank class assets reflects only the power and influence of the communities formed around them. Unlike traditional companies and businesses, they have no cash flow or technology behind them, and they don’t even require groundbreaking innovations in the blockchain infrastructure itself. It all depends on the ability of some people to captivate others.
Are investors disappointed?
Will investments in digital images of “punks” or “monkeys” retain their already exorbitant value? Many people believe that everything that happens will not be good for us and, quite possibly, they are right. But this is the reality of the investment world in 2021.
Analysts call this phenomenon “personalized investing.” Today, almost everyone can create their own token at close to zero cost. And its price will depend on how active the support is in social networks and mass media.
Draw the interest of Elon Musk or any other celebrity to your asset and you’ll be rich in no time. And this is the important thing: now nobody can predict when the collapse will occur.
Perhaps the trigger is the tightening of monetary policy by the Federal Reserve or the depletion of excess savings generated by the pandemic. One thing is for sure: someone will have to pay a price for the next image, which the next generations of investors will laugh for a long time to come.
On the other hand, no one can say for sure which of today’s assets is worth holding for as long as Apple or Amazon stocks, which successfully survived the Nasdaq Composite crash by almost 80%.
At this time, a new crypto industry may be born, which is called Web 3.0, built on the basis of blockchain technology. According to Galaxy Digital fund manager Steve Kurtz, who invests in crypto assets, the real value of many projects is difficult to assess today. Similarly, recently we were unable to calculate the economic model of Facebook, as long as the network has not grown on a global scale.
In the meantime, everyone who believes in the financial prospects of the new world of personalized investments and cryptocurrencies should not forget one simple rule: reality may be virtual, but the money you invest is not virtual!
Sources: Bloomberg, Coingecko, NFTAXO