Throughout early 2021, the exciting, near ridiculous events taking place in the U.S. stock market dominated national new feeds. Despite a global pandemic, natural disasters, and political unrest (the seemingly ideal formula for a disastrous stock market and economy), the 2020 United States stock market had a better year than the historical average. Entering 2021, many were baffled by the outcome of the 2020 market and had no idea what to expect going forward.
What happened in the stock market?
The events of the stock market in January were unprecedented. Hedge Funds, which is “just a fancy name for an investment partnership that has freer rein to invest aggressively and in a wider variety of financial products than most mutual funds” (Gad), bet money that certain companies, such as GameStop, AMC, and Blackberry, would have a losing year in which their stock price would fall. However, what these Hedge Fund managers failed to see and, realistically, could not predict was an event in which members of the internet banded together to save these dying companies and “stick it to the man.”
Members of Subreddit “Wallstreet Bets” banded together and collectively decided to put money into these companies’ dying stocks. This would mean that the hedge funds would all lose massive quantities of money on their bets. Over a span of a few weeks, millions of Redditors, along with support from Elon Musk, essentially decided to bankrupt these massive hedge funds and restore power to the “average Joe.” After all, the American dream is all about the principle of rags to riches – by collectively working together, these Redditors were able to empower the every-day investor by showing that you don’t need to be a massive corporation to make money. Finally, a major point of these Redditors was to showcase the corruption of hedge funds and how they manipulate the stock market. “By examining hedge fund holdings and their returns, they test their assertion that hedge funds manipulate stock prices at month-end to pump up the returns of their portfolios to attract and retain investment capital…The prices then reverse the following day soon after the market opens” (Macisaac).
History of the World Currency
To delve deeper into the craziness of the stock market in 2021, it is crucial to understand a few things. After World War 2, the world economy was in shambles. The major European powers had exhausted their finances to pay for the war, and thus, the world had no worldwide currency. However, the United States was still on the gold standard at that time, and thus at the Bretton Woods conference, the Allied nations agreed to make the dollar the world currency. After decades of low-interest rates in the United States, which caused more and more people to borrow money, the U.S. went so far into debt they had to leave the gold standard. Although the U.S. dollar is still the world currency, this might not last for much longer.
Many are familiar with the early 2010s phenomena of cryptocurrency. However, few understand its use. The madness that is the 2021 U.S. stock market has helped to boost the value of some cryptocurrencies, such as bitcoin, by nearly $20,000 per coin. For the world economy, this event may mean a switch in the world currency. It is important to note that no country has been able to maintain the world’s currency for more than 100 years, and the time for the dollar in the U.S. is rapidly running out. The incredible boom in the stock market, headed up by Redditors, ordinary people, financial vigilantes, and of course Elon Musk himself, has helped to raise the value of cryptocurrency to a globally significant level.
The first month of 2021 helped create multiple new multi-millionaires. Some people who bought the stocks that hedge funds bet against pocketed tens of millions of dollars while others left the venture with a large hole in their bank account. Although investing can be a fantastic path toward financial freedom, it is highly risky and involves a certain amount of luck. It is important not to allow FOMO to prompt you to invest your life’s savings into a dying company.
Gad, S. (2021, January 28). What are hedge funds? Retrieved February 18, 2021, from https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp
Itzhak Ben-David Francesco Franzoni, Itzhak Ben-David, Itzhak, Ben-David, Francesco Franzoni, Francesco, . . . Moussawi R. (2013, November 01). Do hedge funds manipulate stock prices? (digest summary). Retrieved February 18, 2021, from https://www.cfainstitute.org/en/research/cfa-digest/2013/11/do-hedge-funds-manipulate-stock-prices-digest-summary#:~:text=By%20examining%20hedge%20fund%20holdings,attract%20and%20retain%20investment%20capital.&text=The%20prices%20then%20reverse%20the%20following%20day%20soon%20after%20the%20market%20opens.