The last decade has seen digital advancements in all aspects of the word, from Elon Musk trying to get to Mars or the unhackable internet. With every company and business having an online presence, and Covid causing everyone to go contactless, it makes me wonder, about the future of our finances? With Bitcoin taking over the news headlines and crypto becoming part of daily conversation, what does this mean for cash? And what does this mean for the future of currency.
Before even beginning a conversation about cryptocurrency, firstly, we need to talk about the importance of social media and its effects on the stock market. Long gone are the days when Fortune 500 companies ruled the top spots of the stock market; social media and its multiple outlets have introduced a number of changes. Social media influencers and social media outlets have the power to create stock bubbles and manipulate the popularity of stocks. Take GameStop as a recent example. GameStop, a struggling video games retailer that was hit hard by the pandemic, was able to become a million dollar stock on the American stock market. This happened as users on a Reddit forum called “WallStreetBets” decided to buy into GameStop shares, initially because they thought it was undervalued, then to send a message to the short-sellers. For anyone who’s not sure of the jargon, I got you! Short-sellers work as a way of profiting when the price of an asset/stock falls, a short seller pays a small fee to borrow shares from someone, the short seller then sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will drop in price, the difference between the sell price and the buy price is the profit.
What happened is that GameStop’s shares hit a low of $2.57 last year before rising to $18.84 by 31 December after a notable hedge fund decided to back the company. A hedge fund is a pool of money contributed by investors and run by a fund manager whose goal is to maximize returns and eliminate risk. The price was rising steadily but other funds were betting against GameStop by short-selling large numbers of shares. At this point, the users of WallStreetBets Reddit called for people to invest into GameStop shares, pushing up the price to put pressure on the short-sellers. Many Reddit posts argued that this was a way to punish hedge funds that were seeking to profit from a company’s troubles. GameStop’s share price rose to $350. This meant that any short seller who had borrowed GameStop shares at the start of the year and sold them in the market for $18.84 had to find another $301.16 per share to buy them back again and return them to their owner. As some hedge funds had borrowed and sold millions of GameStop’s shares, they were facing huge losses and had to buy the shares back to stop those losses rising further. Buying the shares back created additional demand, pushing the price up even higher. This is the perfect example of a tumultuous stock market journey that demonstrates the power that co-ordinating via social media and the stock market.
Social media has significantly changed the game of finance, and shown how influential it can be. Elon Musk, the founder of Tesla is living proof. He tweeted about the Dogecoin cryptocurrency and afterwards its shares skyrocketed by 50%. Peter Gloor, a researcher for MIT stated that “influencers’ comments about stocks are key metrics in predicting market activity with Twitter”. He believes that echo chambers on Twitter were a contributing factor in the GameStop stock phenomenon, whether or not echo chambers or influencers are fuelling changes in financial markets, it seems that social media can affect market activity. Taking what we know now into consideration, it easy to see the ways that the stock market has changed, people interested in buying, selling and investing in stocks will have to change their approaches to ensure their investments pay off. The question still remains, what is the future for our currency? According to Deutsche Bank the current money system is fragile. The bank recently published an “Imagine 2030” report, in which the Bank sees that by 2030 digital currencies will rise to over 200 million users and that one day digital currency could eventually replace cash. With a number of businesses no longer accepting cash, the future of crypto could be sooner than we think.