- Bitcoin and stock markets are surging rapidly as investors engage in speculative buying after taking advice from a Reddit feed.
- According to recent reports, one subreddit — r/wallstreetbets is making predictions that are causing investors to act upon those predictions.
- Meanwhile, the predictions end up being correct due to the investors' own interest, which makes the demand grow.
Speculative buying in both, Bitcoin as well as the stock market, has seen quite a surge in the recent period. After investigating the phenomenon, analysts seem to have discovered that the driving force of such behavior within the financial markets is none other than Reddit, or rather, some of its subreddits.
As reported by CNBC, one of the biggest subreddits that are causing speculative buying might be r/wallstreetbets. The subreddit claims to offer help to investors who require insight into the market, earning major returns, and alike.
However, while many of the predictions seemingly ended up being true, it is likely that these predictions are self-fulfilling prophecies. In other words, the subreddit recommends taking a certain course of action as it expects positive development. By doing as they are advised, the investors and traders themselves create positive circumstances within the market.
How does it all work?
One example of this is the situation involving Lumber Liquidators, which saw a nearly 20% surge on speculated buying only hours after the subreddit suggested that investing in it could be profitable. This subreddit is nowhere near to being the only place where investors are seeking advice in hopes of catching the ‘next big thing’ before it explodes.
However, this type of speculative buying is rather irrational, which caused economists to believe that the market is entering something called a ‘late-cycle.’ Basically, the valuations grow to become disproportionately large as the market continues to grow. The stocks start surging, and speculative buying skyrockets due to the fear of missing out (FOMO).
Meanwhile, all other indicators claim that this should not be happening. Then, people start overselling when they deduce that the bull run is at its end. As a result, the prices crash, often dropping much lower than their starting value.
This was already a case with Bitcoin back in the early days of 2018, just after the coin reached $20,000. Now, with another halving of its blockchain rewards approaching, many expect that the coin’s price will surge to even greater heights, and by buying it early while it’s still ‘cheap,’ they are increasing the demand which drives its price up on its own. A similar thing is happening to stocks, but it is important to remember that these pump-and-dump schemes usually result in a lot of investors losing a lot of money.