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Speculative buying inand the stock market is seemingly being driven by Reddit forums dedicated to such activities.
According to a report from CNBC, the subreddit forum r/wallstreetbets has been driving substantial market jumps.
The feed claims to offer insight into the market, promising to help investors earn substantial returns. However, the predictions appear to be self-fulfilling prophecies, as each suggestion jumps in value shortly after being mentioned.
Lumber Liquidators, for example. recently skyrocketed nearly 20% on speculative buying. This occurred just hours after the r/wallstreetbets feed suggested it could be a ‘turnaround play.’
This feed is also not the only one driving such buying. A host of other online soothsayers are claiming to offer investors special insight into the market. As stocks continue to climb, investors will be there seeking the ‘next big thing,’ willing to bite on any lead.
This type of irrational speculative buying has led economists to suggest that the market is nearing a ‘late-cycle.’ Often as markets increase, valuations become disproportionately large. As stocks move rapidly upward, the fear of missing out (FOMO) drives speculative buying.
Additionally, all other indicators appear negative. The overall economic outlook is poor, earnings have long since been eclipsed, and few if any see the current bull run lasting for much longer. Nevertheless, the irrational buying continues, prompting calls of a market peak.
While Bitcoin’s speculative cycle is somewhat different, irrational buying led to the massive pump that occurred in 2017. The FOMO among cryptocurrency newcomers led a host of investors to buy in at peak values, only to be left holding the bags.
Much of the speculative buying was also led by Reddit forums offering any number of suggestions. In particular, altcoin feeds provided speculative suggestions for investors who were hungry for huge returns.
In a similar way to stocks, digital currency values would often spike drastically, only to lose value later. Often called ‘pump and dump’ schemes, these speculative curves led to massive losses for investors.
While the market for Bitcoin seems to have found stability, potential bull runs can often be speculative. Whether Bitcoin or stocks, market cycles occur, and buyers must beware.
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