Last week I compared GameStop to Bitcoin. The thing about Bitcoin as a financial asset, I wrote, is that “there is no underlying claim; there is just a widespread acknowledgment that people think it’s valuable.” I suggested that that was a fascinating and powerful innovation,[3] but that once you are accustomed to it you might get a little overconfident and think that any financial asset—GameStop stock, say—could work the same way. People will buy it because they think it will retain value because people will buy it because they think it will retain value because people will buy it because etc., recursing infinitely, with no underlying fundamental rationale.
I thought that that would not work, with the stock of a mall retailer; eventually a bad earnings release or whatever will kill the vibe. But I know nothing. Maybe it can work; maybe GameStop traders can conjure value out of thin air and maintain it. Maybe people will buy GameStop because people buy GameStop, and it will go on forever because they don’t stop. “The thing I like about GameStop is not its underlying cash flows,” a venture capitalist will blog in 2027, “but the fact that it is a scarce digital store of value.”[4]
I don’t think, however many days we are into this nonsense, that GameStop is a particularly important story (though of course it’s a fun one!), or that it points to any deep problems in the financial markets. There have been bubbles, and corners, and short squeezes, and pump-and-dumps before. It happens; stuff goes up and then it goes down; prices are irrational for a while; financial capitalism survives.
But I tell you what, if we are still here in a month I will absolutely freak out. Stock prices can get totally disconnected from fundamental value for a while, it’s fine, we all have a good laugh. But if they stay that way forever, if everyone decides that cash flows are irrelevant and that the important factor in any stock is how much fun it is to trade, then … what are we all doing here?
My prediction is that it’s not sustainable as a base-less store of value or transaction currency in the same way as bitcoin, because there’s SO MUCH overhead in trading. Predicting internet attention span is a mug’s game, but I think it’ll take a little longer than Levine does—I’ll be surprised if it lasts to the end of February, shocked if it goes through March, but won’t absolutely freak out for a year.
In 2030: “People who bought GameStop stock are now billionaires. It was even mentioned on LessWrong, but again we collectively failed at instrumental rationality. Maybe next time.” :D
Best few paragraphs I’ve read recently:
-- Matt Levine in his Money Stuff newsletter. See also Raemon’s recommendation for this newsletter at https://www.lesswrong.com/posts/9Qwignbzu4ddXLTsT.
My prediction is that it’s not sustainable as a base-less store of value or transaction currency in the same way as bitcoin, because there’s SO MUCH overhead in trading. Predicting internet attention span is a mug’s game, but I think it’ll take a little longer than Levine does—I’ll be surprised if it lasts to the end of February, shocked if it goes through March, but won’t absolutely freak out for a year.
In 2030: “People who bought GameStop stock are now billionaires. It was even mentioned on LessWrong, but again we collectively failed at instrumental rationality. Maybe next time.” :D