GameStop frenzy echoes sharp moves long seen in cryptocurrency markets

Fibo Quantum

Groups of investors who organize on social media and target a specific asset—often one small and illiquid enough to be easily influenced—are a staple of the crypto world. Although digital currencies have made inroads with professional investors, they are also still subject to pumping schemes that proliferate on social-media platforms like Discord and Telegram.

The prevalence of such ploys, going back nearly a decade to the early days of the crypto industry, suggest that the mania surrounding GameStop on Reddit’s WallStreetBets forum may not be an isolated event in the stock market. A similar, temporary spike also occurred last week in the silver market.

“It’s definitely an awakening of small retail traders that there’s power in numbers, and that’s come from crypto,” said Kain Warwick, the founder of Synthetix, a crypto-focused derivatives platform. “We realized that a long time ago.”

Another similarity between crypto and WallStreetBets: Free tools, like online trading apps and message boards, promote what early bitcoin adapters called the democratization of finance. Bitcoin was created 12 years ago as a decentralized currency that would be free from the interference of bankers and other middlemen.

When the Robinhood app restricted trading of some stocks, investors on WallStreetBets saw it as further evidence of the inequity of the investing world, casting themselves as David and the Wall Street establishment as Goliath. And in the wake of that decision, Coinbase, one of the biggest crypto exchanges, experienced an increase in new customers as those investors looked for new investing platforms.

There was already overlap among crypto and Robinhood traders. About 46% of crypto investors on digital exchanges like Coinbase and Kraken have also made deposits at Robinhood, according to a survey of consumer-spending habits from analytics firm Cardify.ai. Both fans and critics of Robinhood, which allows investors to trade stocks, options and cryptocurrencies, say it promotes “gamification” of the market with the use of push alerts, free stocks and confetti to encourage engagement.

Neeraj Agrawal, the director of communications at Washington, D.C.-based cryptocurrency trade group Coin Center, says there is a significant overlap of gamers and crypto traders—and now, apparently, stock traders.

“It’s the same skill set,” he said. “Day trading is basically sitting in a gamer chair with multiple screens playing a game.”

The velocity of the recent surges in bitcoin and GameStop are also drawing comparisons.

Bitcoin has mounted a spectacular rally since September when it traded around 12,000, one that was turbocharged in December and January. The digital currency crossed $20,000 for the first time on Dec. 16, broke through the $30,000 barrier on Jan. 2 and topped $40,000 just five days later.

After waffling recently, bitcoin gained fresh momentum this week after Tesla Inc. disclosed its purchase of $1.5 billion in bitcoin and said it plans to accept the digital currency as payment for its electric vehicles. Bitcoin set a new intraday record of $48,226 on Tuesday.

Some bulls have said bitcoin could hit $200,000 by the end of year, defying skeptics who say it has yet to prove itself as a large-scale currency.

GameStop’s surge was also turbocharged. Shares started the year at $19. By Jan. 19, they had doubled. Three days later, they had more than tripled—and three days after that, on Jan. 27, they closed at a high of $347.51. Through the run and subsequent fall—the stock closed Tuesday at $50.31—users on WallStreetBets urged one another to “hold the line,” “send GME to the moon” and put pressure on the hedge funds short selling GameStop on the other side of the trade.

The stock’s surge was divorced from fundamentals. GameStop is expected to post its fourth consecutive annual revenue decline as it struggles with years of falling mall traffic and advances in technology that let people download games directly to their consoles instead of buying hard copies.

There has been much debate about whether the behavior of the investors organizing on WallStreetBets should be considered market manipulation. The GameStop frenzy has attracted the attention of the Securities and Exchange Commission, which has said it is on the lookout for such trading. Treasury Secretary Janet Yellen, meanwhile, has asked for a meeting with officials at the SEC, Federal Reserve, New York Fed and Commodity Futures Trading Commission to discuss the recent stock-market volatility.

Crypto pumping schemes have received much less scrutiny, even as the Commodity Futures Trading Commission has offered rewards to whistleblowers. Traders gather in groups with names like Big Pump Group and Big Pump Time to target a specific currency on a certain exchange at a set time in a bid to drive the price higher for a quick payday.

Such groups became highly organized by 2014 and reached their height in 2017 and 2018. They generated more than $825 million in trading activity in 2018 alone, all of it coming from small, individual traders across hundreds of different groups, according to a Wall Street Journal analysis.

In one more recent example, a group called United Binance Pushes orchestrated a pump-and-dump of a small, obscure cryptocurrency called Bread, with a market value of about $10 million. On Saturday, at 1 p.m. ET—the preselected and advertised time—trading in Bread exploded, very briefly, on the Binance exchange.

In one hour, the volume for Bread—which is so marginal that it only trades in bitcoin and ether—surged to 65,000 bitcoins from 2,000 bitcoins. In price terms, it rose to 0.00000473 bitcoin from 0.00000281, before falling.

“With many new members we hope this was a good pump and learning experience for you,” the group wrote on Discord after it was over.

This story has been published from a wire agency feed without modifications to the text.

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