(Bloomberg Opinion) -- Taking the musings of social media seriously was one of last year’s expensive lessons for sophisticated investors.
From GameStop Corp.’s epic short squeeze to the boom in cryptocurrencies, non-fungible tokens and ETFs, retail punters poured money into trending market tips while sharing their highs and lows on Twitter, TikTok and Reddit. U.S. investors shoveled more than $1 trillion into equities last year — more than the past two decades combined.
Hedge funds and investment banks have resolved not to be caught out by the crowd, and have developed new tools to glean signals from the social media hive mind. Highly paid analysts now send out natural language processing-based alerts that read like trading haikus: “crypto, china, stake, btc, eth, dip, hold, ada, long, moon.”
The next test for the social-media scrapers will be figuring out how seriously to take mockery. This week, the online peanut gallery turned against actor Matt Damon’s ad for the trading app crypto.com, on display at screenings of the new Spider Man movie and American football games (presumably a sign of the target demographic).
In the ad, Damon pays homage to history’s explorers, innovators and astronauts, before exhorting regular folks to follow his lead into the volatile world of crypto trading. “Cringe” and “yuck” were among the glowing reviews, as viewers wondered how Dogecoin — described as “pretend computer dog money” — could be compared with climbing Mount Everest.
The sniping reaction to the cringeworthy crypto commercial could be an interesting signal for sentiment bots for two reasons. The first is that celebrity crypto endorsements, from adopting laser-eye avatars to promoting apps, might be losing their power as drivers of retail-investor enthusiasm. Judging by criticisms of Damon’s wealth, influencers look vulnerable to the same kind of populist backlash that they’ve tried to co-opt. Their reach is also under close scrutiny by governments.
The second reason is that the crypto world’s advertising blitz, from stadium sponsorships to billboards, hasn’t delivered market gains either. Bitcoin’s price in December suffered its worst monthly drop since a 35% rout in May, and Coinbase Global Inc shares have fallen 30% in two months on the back of worse-than-expected quarterly results. Trading app Robinhood Markets Inc, the symbol of meme-stock mania, hit all-time stock-price lows recently.
One ETF explicitly designed to capture meme-stocks, SPACs and “whatever happens to be trending at the time,” dubbed the FOMO ETF, has slumped 12.6% in six months. Idealistic moonshot bets are struggling in a post-Covid, inflationary world, as famed active manager Cathie Wood’s ARK fund attests.
To be sure, the proliferation of filter bubbles means that what dismays some corners of Twitter still excites others. Your author recently joined a virtual cryptocurrency seminar led by RadioShack investor and self-help guru Tai Lopez, where dozens of participants posted messages like “money is worthless,” “gold is king” and “I am excited to learn.” Maybe for every Twitter critic throwing mud at Damon — an actor who is easy to mock, as fans of Team America World Police can certify — there are several silent speculators gearing up to buy.
Eternal crypto optimists will also point to institutional investor interest in digital assets as an alternative to gold — what Goldman Sachs calls the “store of value” market, of which Bitcoin is an estimated 20%, and which could imply a $100,000 price target for the cryptocurrency one day.
Still, there is clearly something fragile about the current wave of retail-driven “bubblets,” as Morgan Stanley’s Ruchir Sharma called them this week. Crypto, SPACs, clean energy and unprofitable tech companies have seen falls of 35% or more from their recent peaks.
Beyond the market realities that rising interest rates might bring — such as competition from cash savings accounts — there will be an “emperor’s new clothes” effect when promises of ever-rising prices fail to bear fruit. Research by the Financial Conduct Authority, the U.K. regulator, has found a strong element of competition with peers and word-of-mouth driving crypto investments. When expected gains aren’t delivered, the message becomes harder to spread. It also matters that NFTs have been rejected as naked cash grabs by the very communities that are supposed to adopt them, such as gamers and musicians.
With Reddit eyeing its own initial public offering, maybe the Matt Damon Mockery Index deserves to see the light of day. The world is looking for signals of whether funny memes will continue to mean serious money — and whether celebrities should worry about, not embrace, laser eyes.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.