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A year since GameStop started it all, the meme stock craze is fading.
Last January, millions of retailers banded together to drive flashy rallies in nostalgic and very short-lived companies like GameStop, AMC Theaters and BlackBerry. day traders coined a new asset class dubbed the "meme stock" and regularly added new companies to the basket over the course of the year. At one point, a small Danish biotech company sprung up over 1,300% in one day in the interest of individual investors looking for the next adjustment short.
But observers say those wild spikes are likely to subside as retail traders look to new horizons to replicate last year's massive gains.
"Meme stock rallies are going to taper off," said Dan Raju, co-founder and CEO of Tradier. "I hope that in 2022 active traders will jump into crypto."
Tradier is a financial technology and software company that powers much of the active retail trading in the market. Last year, the brokerage-as-a-service provider processed around $46 billion in assets for 2 million merchants worldwide.
Factors that contributed to the rallies in meme stocks, such as people working from home and volatile pandemic markets, are abating, Raju said. To top it off, retail traders have "graduated" from simple stock trading and are moving towards more complicated assets such as cryptocurrencies.
An Apex Fintech Solution Report released on Friday shows that meme stocks began to lose their momentum in late 2021, with many popular names slipping down the rankings of top stock holdings. Meanwhile, metaverse stocks have caught the attention of younger investors, with companies like Facebook parent Meta, metaverse platform Roblox and Nike, moving up the rankings, Apex said. Although still loosely defined, the metaverse is a virtual world where people interact as avatars and can play, interact and shop using cryptocurrencies.
Raju said that volumes in cryptocurrency trading remain relatively low among retail investors, with most active traders making fewer than three transactions per month.
But that is about to change.
"2022 will be the year of regulation," Raju said. "Regulation is good for crypto because it legitimizes the asset class. A lot of active traders haven't jumped into crypto, so as regulation comes in, active traders will get involved."
Many prominent investors have shunned of cryptocurrencies while awaiting more regulatory clarity from US agencies. Even the popular trading app Robinhood has avoided calls to add more cryptocurrencies to its platform, citing regulatory uncertainty.
Until now, lawmakers and regulators, such as the US Securities and Exchange Commission and the Federal Reserve, have been hesitant to act. One exception in Congress has been Cynthia Lummis, a bitcoin evangelist and Republican senator from Wyoming, who is said to be planning a bill that would be one of the first attempts to create a legal framework for cryptocurrencies. Regulators, for their part, have begun to explore their own rules for the space, primarily focused on protecting investors.
โRegulation will drive legitimacy,โ Raju said, and for retail traders, โit will be funneled into creating crypto volume.โ
