From GameStop to Bitcoin
The latest stirrings made global headlines in January when young, tech-savvy revolutionaries battled hedge funds shorting GameStop stock.
Formulating their strategy in online forums like Reddit and armed with apps like Robinhood, the elective collective drove a 1600%t share-price rally of the struggling video game retailer. Though the GameStop frenzy earned Wall Street’s ire and the world’s attention, it was not the first time people power had disrupted the market.
The aftermath of the 2008 Global Financial Crisis (GFC) gave rise to an idea that can be termed the “democratisation of financial services”. For example, in the context of cryptocurrencies, everyday investors, galvanised through social media, helped drive the price of Bitcoin alone up 77% in January 2021 and 305% over 2020. Our research at The University of Queensland (UQ) Business School indicates that four distinct groups of individuals partake in shaping crypto markets:
- Freshman: those with little or no cryptocurrency knowledge, but keen to ‘jump on the bandwagon’
- Fortune Hunter: those seeking high cash returns
- Idealist: individuals not motivated by money but wanting to build, share and extend cryptocurrency knowledge and skills for others
- Trailblazer: the smallest group overall, consisting of those engaged in commercial cryptocurrency activities as quasi-entrepreneurs
How did we get here? Millennials and the GFC
Today’s Millennials were teenagers when the GFC hit in 2008 and the current attempt to democratise financial services is a logical consequence of their experience.
Traditional social structures have disappeared and their lives are characterised by instability: economic crises, a pandemic, rising education costs, unattainable home ownership and volatile job markets.
They also are digital natives, able and accustomed to access everything they need at any time through a mobile phone.
For some at least, influencing a stock such as GameStop or cryptocurrency like Bitcoin is a social revolution, a chance to beat the machine with its own weapon.
Others are drawn by the possibility of making a quick buck with nothing more than a little seed money, a mobile phone and a free app.
Where to from here? Impact on market stability
Rather than questioning how this technology-led revolution will affect the market, it’s more fitting to ask the question: what is the market?
Existing mainstream financial markets, and its institutions such as the ASX, Wall Street and Dow Jones, are deeply entrenched and unwilling – or unable – to evolve. In the cryptocurrency world, the power of the people is fuelled by unprecedented advances in digital technology, which means Millennials are shunning an existing market that does not appear to benefit them.
The consequence may be disruption of existing markets, currencies, and financial systems as we know them today, ultimately replacing the status quo all together.
Experienced, older investors may still seek the familiarity and comfort of blue-chip shares and established markets. However, many Millennials trying to “beat the system” or secure a quick pay-day are not necessarily concerned about risk. What have they got to lose?
In saying that, the same tried-and-tested rules apply for new investors: if you don’t understand it, don’t put your money in it.
Predictions for 2021 and beyond
The face of finance is changing. Thanks to new digital technologies everyone can, in theory, participate in financial markets without the need for banks, brokers or established financial institutions.
Trading apps such as Robinhood, eToro and Stake democratise finance by removing traditional barriers and exposing a larger percentage of the population to the stock market. In the same way Netflix rendered Blockbuster obsolete, decentralised finance – such as trading apps, open lending and digital banks – may eventually replace big banks.
A bigger conversation
While GameStop and Bitcoin have sparked gossip and speculation, there must be a broader national conversation about financial wellbeing. Post-COVID, there will be heavily impacted individuals who must reduce their risk exposure or participation in financial markets. Conversely, there will be less-affected individuals willing to expose themselves to new technologies and risk.
While individual measures of financial wellbeing are subjective, it ultimately boils down to whether basic needs can be fulfilled in a comfortable manner. To ensure this, money and markets must be demystified through open conversations where knowledge can be shared, fresh ideas floated, barriers removed, and revolutions raised.
If you’re comparing online share trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to providers’ websites. The information displayed is based on an average of six trades per month. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of online share trading companies.
Main image: QualityHD (Shutterstock)