Donald Trump's social media platform Truth Social went public on Tuesday, March 26th. Shares in parent company Trump Media & Technology Group soared 15% after their first day of trading on the Nasdaq stock exchange, adding US$1.1bn (£876m) to their share price. company value.
President Trump wrote “I LOVE TRUTH SOCIAL” on the platform, echoing the sentiment of “I just love the stock” when GameStop's stock price rose in January 2021. For those who don't remember the GameStop scandal, the Texas computer gaming stock retail chain experienced an unprecedented price surge following the activity of retail investors on the social media platform Reddit. .
Millions of investors in Reddit's WallStreetBets community pushed GameStop stock from $20 to $480 in January's “short squeeze.” At the time, some hedge funds were forced to liquidate huge bets on stocks and suffered huge losses. The power of small amateur investors to defeat Wall Street giants has been celebrated on the internet and even served as the inspiration for the 2023 film Dumb Money.
Trump Media stock appears to be yet another example of a so-called “meme stock,” whose popularity is driven by social media activity and memes posted on various platforms such as Truth Social.
However, while the similarities with GameStop are clear, Trump Media's movement seems less likely to be as successful. On Monday, April 1, less than a week after trading began, Trump Media's stock price fell more than 20%.
Spyro the Dragon/Shutterstock
meme stock description
The social media hype surrounding GameStop began within the retail investor community, which took a “David vs. Goliath” mentality. The companies behind Truth Social have sought to foster a similar sentiment to the “little guys” who resist Big Tech's censorship.
“As a publicly traded company, we will passionately pursue our vision of building a movement to take back the internet from big tech censorship,” Trump Media CEO Devin Nunes said in a statement.
But Trump Media stock is directly tied to the very high profile figure of Donald Trump, who owns 58% of the stock. Similarities can therefore be seen with PR campaigns launched for cryptoassets such as NFTs (non-fungible tokens), where celebrities are often used to attract investors to projects.
Read more: From GameStop to crypto: How to protect yourself from meme stock mania
President Trump's media stocks are undoubtedly attractive to his loyal supporters, who appear to have fueled the price rally. But with social media hype, meme stocks could attract a wider range of investors.
That's why it's important to understand that investing in meme stocks or “meme coins” is a risky endeavor. A rise in prices that cannot be explained by a company's fundamentals is called an asset price bubble. Speculative bubbles are very common in financial and cryptocurrency markets and provide an opportunity to generate abnormal profits in a short period of time.
However, their tendency to burst can pose a risk for investors. Participating in such speculative behavior is generally considered irrational, as it is very difficult to justify price increases.
More importantly, it is nearly impossible to predict exactly when a bubble will burst. Retail investors should be cautious and should not make decisions based solely on social media announcements about celebrities.
How long will meme stocks continue to soar?
Trump Media's stock price has now fallen to almost its pre-spike levels. For many individual investors, it's reasonable to think that it's once again too late to reap abnormal returns from this surge. This is because the price of meme stocks tends to simply fluctuate after an initial spike.
Trump Media stock plummets in its first week after going public
Yahoo Finance
In order to generate some stable income in the future, it is necessary to evaluate only the long-term growth potential of the asset. However, meme stock investors tend to have very short investment horizons, so long-term stock performance is rarely evaluated.
After the cryptocurrency market crash in 2022, many individual investors lost their savings due to the bursting of the bubble. Many of the crypto assets that collapsed were meme coins promoted by celebrities. For example, Dogecoin was promoted by Elon Musk.
Celebrities have immense power to influence the public. However, the ethical implications of these campaigns are often not considered when it comes to financial decisions.
pay attention
As of this writing, there is a further bullish trend in the price of cryptocurrencies, especially Bitcoin. However, regulations and consumer protections are still unclear, and there is no response from regulators to concerns about the environmental impact of Bitcoin mining.
Some experts who invest in cryptocurrencies and derive direct economic benefits from the price surge will, of course, argue that this rally is not a bubble and that prices will continue to rise. However, it may be unethical to expose consumers to unreasonable risks.
According to several studies, there is a growing awareness of environmental criticism related to the crypto market. But recent research I conducted with colleagues found that retail investors generally don't care. Understanding that cryptocurrencies are “unsustainable” and “somewhat unethical” does not make retail investors less likely to invest in crypto assets.
The movement of Trump Media's stock price will likely be supported by Trump supporters. But it also likely attracted some investors who simply wanted to participate in the stock rally, even if they didn't share Trump's political views. The desire to make money quickly is one of his main driving forces behind meme stock investing, and his social media campaigns greatly fuel this sentiment.
