INTHEBLACK September 2021 - Magazine - Page 22
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I
n January this year, billionaire entrepreneur
Elon Musk triggered an investment frenzy
with a simple two-word tweet: “Use Signal”.
His note was innocent enough – Musk was
telling his 42 million followers to download an
encrypted messaging app called Signal – but the
tweet was mistaken as endorsement of a small
medical device firm, Signal Advance. Musk’s
followers dutifully bought stock in the company,
driving its share price up by an astounding
11,708 per cent in just three days.
The Signal tale is just one instance of the power
of social media in uniting people from all walks of
life, income levels and geographical locations to
enact change on a dramatic scale.
This year’s GameStop stock fiasco is another
example. The WallStreetBets forum on the Reddit
website encouraged retail investors to buy the
video game company’s stock, causing its price to
surge by 1500 per cent in January and squeezing
out short-selling hedge funds. GameStop’s share
price went from a low of US$17 (A$22) to a high
of US$483 (A$624), but the bubble was quick to
deflate. By the first week of February, the share
price had dropped to US$55 (A$71).
Are these examples of market manipulation,
rapidly inflating investment bubbles or perhaps a
bit of both? Whatever the case, they illustrate the
power of social media to rapidly shape perceptions
22 ITB September 2021
of value among retail investors and move markets
to new speculative highs.
THE SOCIAL MEDIA EFFECT
Investment bubbles are defined as the swift
escalation of an asset price followed by a rapid and
often devastating fall. One of the most famous,
“Tulip Mania”, occurred in the 1630s, when Dutch
citizens rushed to buy rare tulip bulbs in hopes of
reselling them for a profit. The bubble burst in 1637,
wreaking havoc on the Dutch economy.
Centuries later, the dotcom bubble of the late
1990s and early 2000s saw speculative fever sweep
the globe. The NASDAQ Composite Index rose
by 582 per cent from January 1995 to March 2000
as investors rushed to buy shares in technology
start-ups. By 2002, their losses were estimated
at about US$5 trillion (A$6.5 trillion).
Today, social media and technology bring new
elements to hysterical investment. Consider the
latest craze, non-fungible tokens (NFTs), which
represent ownership of unique items, such as art,
collectibles or even social media posts. In March
this year, for instance, Twitter CEO Jack Dorsey
sold his first ever tweet as an NFT for more than
US$2.9 million (A$3.9 million).
Dr Timo Henckel, research fellow at the
Centre for Applied Macroeconomic Analysis in
the Research School of Economics at Australian
Centre: Jack Dorsey, creator,
co-founder and chair of
Twitter, at the Bitcoin 2021
Convention in Miami, Florida.
Dorsey sold his first tweet as
an NFT for US$2.9 million
(A$3.9 million) in March 2021.
Top right: YouTube
personality Keith Gill, who
drove the GameStop trading
frenzy in early 2021.
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