A Stock, Crypto & Commodity walk into a bar…
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A stock, crypto and commodity walk into a bar… Just kidding, it’s not the 21st of June yet. This week, I’m focusing on three instruments that made it into the public eye over the last few weeks, which continue to dominate headlines.
GameStop (GME), Bitcoin (BTC) & Gold (GOLD)
A few weeks ago the US gaming retailer GameStop was at the centre of a media frenzy after its shares were bought by thousands of Reddit users, causing the share price to skyrocket from $17 to £480. The heavily-shorted meme stock (a product of herd investing and one that ignores the fundamentals of traditional investing) cost angry US hedge funds billions of dollars. In the wake of the trading frenzy, shares in the gaming retailer fell to $80 shortly after the market opened, recovered to $117 by mid-session but ended on $90.
In the last few days, shares in the Texas-based gaming store surged once again, opening 80% higher at $170 after doubling the day before. The latest rally comes as a surprise to analysts who expected longer-term stability for the game sellers. Analysts were unable to pinpoint the exact raison d’etre for the sudden surge but suggested activist behaviour, the stepping down of GameStop’s chief finance officer Jim Bell on 26 March, and a reshuffling of top executives.
One thing is for certain: heavily-shorted meme stocks will only rise in popularity as amateur traders look for accessible entry points into the market. Could this stock change the way people invest forever or is it all one big game?
After a sensational end to 2020, the original and most mainstream cryptocurrency bitcoin tumbled 20% amid a market-wide crash when more than a billion dollars was wiped off the cryptocurrency’s value. The last few months have seen increased institutional backing following mainstream adoption from Square and Tesla buying $1.5 billion worth of crypto.
Investor sentiment is strong and analysts predict another surge for the notoriously volatile cryptocurrency. It has been documented that while each bull run is followed by a correction, a bitcoin rally to new levels is never far behind.
Earlier this week a report by the investment bank, Citi, claimed that bitcoin could play a huge role in the global financial system, calling it “the currency of choice for international trade”. The report went on to say that the popular cryptocurrency could experience a “massive transformation” that propels it into the mainstream system. The report by Citi caused the crypto to gain, reaching $48,500 per coin. Following suit, Goldman Sachs has announced it will restart crypto trading after a temporary halt and will begin dealing bitcoin futures for clients next week with a potential bitcoin ETF on the cards.
While crypto enthusiasts and tech junkies rejoice at more institutional acceptance, concerns grow over the overwhelming energy consumption required for bitcoin mining. The energy consumption following its recent bull run was equivalent to the annual carbon footprint of Argentina. Is the enormous energy consumption enough to burst this bubble, or is it simply part and parcel of an investment on the way to the moon?
This year, the yellow metal has seen its worst performance in decades. The safe-haven asset is said to perform when the US dollar is flagging, however, 2021 has seen both gold tumble and the US dollar fluctuate. Amid mainstream acceptance, institutional investment and the pandemic, could this decline mean investors are seeking new investment opportunities with cryptocurrencies and equities instead? Could investors be seeking riskier investments to achieve stronger profits now the brunt of the pandemic is almost over.
With the Fed continuing to keep lending rates at near historic lows and a retreat in US Treasury yields, we are bound to see some monetary inflation – in fact, the broad money supply annual increase last year went up from roughly 5% to 25%.
Providing fiscal relief to a suffering economy, President Biden’s $1.9 trillion stimulus package saw investors turn to gold as a refuge from inflation. Will we see more inflation over the next few months as Biden’s stimulus package comes to fruition and is finally rolled out or will the new source of economic activity renew investor confidence and bolster the haven asset?