This year, stocks such as the movie theater chain AMC Entertainment and video game retailer GameStop (GME) have been the vehicle for individual retailers to show their disagreement against the so-called “free market.”
As of late January and fueled by sentiment from Reddit communities like r / Wallstreetbets, these meme shares have seen tremendous growth this year. GameStop has shown returns of 1,069.80% to date, while AMC has shown gains of 1,919.34%. At this rate, they should have an annual return of 2.440% and 4.378%, respectively.
Around the same time, Bitcoin (BTC) ventured past the $ 50,000 mark for the first time after the now-infamous GME drawdown and Tesla’s purchase of BTC worth $ 1.5 billion. While BTC price momentum continued to hit its all-time high of $ 64,889 on April 14, it crashed severely to hit its pre-early January surge levels of around $ 35,000 at the time of writing.
GameStop / AMC correlation with BTC unclear
On June 1, AMC shares began to rally once again, more than doubling their value in a single day. The stock rose from nearly $ 30 to a high of $ 65.57 in the midday trading session on June 2. BTC also saw a small rally from the levels below $ 35,000 on the same day to hit the $ 38,600 range on June 3. Stocks and cryptocurrencies are often traded solely based on market sentiment and have apparently correlated in the past on their upward movement, it is important to assess the correlation between the two, if any exists.
Martin Gaspar, a research analyst at CrossTower, a digital asset exchange, told Cointelegraph: “There doesn’t seem to be a great correlation between the GME / AMC share price and the price of Bitcoin. In the small contraction we saw earlier this year, the GameStop and BTC price surge was likely a coincidence. “
On the prospects for AMC in the near future, he added, “AMC could very well be the new GameStop. Stock forums and online memes show that many traders seem to believe in AMC, despite its rising price relative to fundamentals. “
Due to AMC’s recent meme frenzy, the company even got a enhance in credit rating. According to analysts at S&P Global Ratings, the company is less likely to default after taking advantage of the meme frenzy by raising cash in the stock markets. It sold 11.55 million shares at an average price of $ 50.85. Although the company’s bonds are classified in the most speculative category of bonds, fairly close to companies that are in default or near default, S&P upgraded its rating to CCC +, which is two notches above its levels. above and seven levels below investment grade, ie. , BBB-.
In addition to the correlation aspect, Gaspar also commented: “We have also seen more recently that the price of BTC has languished, while AMC has skyrocketed, further underlining this relationship.”
The existence of correlation between GME / AMC stocks is often difficult to prove concretely 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 profit from high-risk trades, including Bitcoin, under pressure from regulation and from influencers and assets who supposedly had no real prospects. Fluctuations in the price of both Bitcoin and stock memes are very familiar to veterans of the cryptocurrency market – the pumping and dumping in action. “
AMC shares rose 95.22% on June 2 to $ 62.55. Following the announcement of the sale of 11.55 million shares, the share price fell 17.92%. This, combined with the fluctuations observed on GameStop earlier in the year, is proof that any scenario is possible with these actions due to the lack of fundamentals and the dissemination of information on Reddit.
Although, Jim Cramer, CNBC host Bad money has indicated that this might be the right time to enter GameStop and AMC, although he cautioned that “if you have raised them from much lower levels, take a little off the table. These stories can always go wrong. ”
Do Kwon, co-founder of Terra, a protocol for stablecoins linked to fiat currency, elaborated on the relationship between Reddit and these stocks, telling Cointelegraph: [GME and AMC] reflect retailer dismay with current HFT [high-frequency trading] TradFi world headlines and asymmetries. “He further added:” It would not 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. ” .
Speaking of stocks with well-established correlations with Bitcoin, MicroStrategy (MSTR) is the first stock that comes to mind due to the large reserves of Bitcoin it owns, along with the high bullish stance of its CEO and founder, Michael Saylor. The company has 92,079 BTC valued at more than $ 3.4 billion, which represents 0.43% of the maximum token supply of 21 million tokens.
Related: Bitcoin Stocks: JPMorgan Offers Exposure to BTC, a Sheepskin ETF
The firm was one of the first publicly traded companies to add Bitcoin to its balance sheet and was also considered a proxy for BTC by investors in traditional financial markets. Lyu further said: “The shares of companies that own Bitcoin depend on their value. MicroStrategy lost up to 10% during the week; Bitcoin lost the same amount. It’s okay when you have 90,000 BTC. “
In fact, MicroStrategy is included in JPMorgan’s Cryptocurrency Exposure Basket (CEB), which is a portfolio of debt instruments comprising 11 unevenly distributed stocks. These shares are issued by companies that keep BTC on their books as a treasury asset or are related to cryptocurrency in an auxiliary way.
In addition to MicroStrategy which has 20% of the total allocation, the CEB also has shares in the companies 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 also spoke about the performance of the CEB compared to BTC:
“JP Morgan’s cryptocurrency exposure basket is likely to have performed better than BTC, given that this basket includes companies that are not purely utilized cryptocurrency companies. This insulates investors from movements in BTC. Nvidia, one of the companies included in this basket, is currently at all-time highs, while BTC is down about 45%. “
Stock meme phenomenon to drive meme coins
Regarding the impact of the meme stock phenomenon on the flagship cryptocurrency in BTC, it is unclear as some of the moves appear to be a coincidence. However, it could be a precursor to another meme coin rally similar to the performance of Dogecoin (DOGE) and Shiba Inu (SHIB) earlier this May, as Gaspar put it: “There is speculation among traders that meme coins they could position themselves to rally once the cryptocurrency market regains its equilibrium. “
The bottom line is that the communities that brought meme stocks to such levels are also behind the surges in GameStop and AMC stocks. According to Kwon, “The interesting thing is that the fundamentals of GameStop, AMC and DOGE are unsatisfactory within their relative markets, but they represent a new kind of Schelling social point that is a manifestation of investors’ dismay with the current limits on the market. current system. “
Related: Does everyone say hello to the Shiba? The rise of Dogecoin suitors fueled by meme frenzy
However, a meme coin backed by a motivated and decentralized community of online proponents ceases to be a meme after a certain point, as seen in the case of Dogecoin.
It is highly likely that once these meme stocks are saturated with demand, some of this demand has a high probability of flowing into altcoins, more specifically, meme coins. Especially through trading platforms like Robinhood, retailers crowd the site looking to make a quick buck and laugh with their friends while they do it.