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What happens to the foot soldiers of the meme trading revolution?

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Meme stocks, crypto, and fintech are feeling the pain

Graphics by Michele Doying / The Verge

Fintech is in its flop era, and it would be funny, except that it’s dragging real people down with it.

It’s true that stocks are down generally — the S&P 500 has fallen 10 percent in the last 30 days, the Nasdaq is down 14 percent, and the Dow Jones Industrial Average dropped 6.5 percent. But fintech is, by comparison, down bad.

Coinbase dropped almost two-thirds in the last 30 days. Block, the Jack Dorsey-led company formerly known as Square, fell by 40 percent. PayPal shares dropped by a third. Robinhood has fallen less, shaving off more than a quarter of its value.

The meme stocks are down bad, too. GameStop fell more than 40 percent in the last month. AMC also lost more than 40 percent of its value. Bed, Bath and Beyond is worth about half as much as it was a month ago. Bitcoin’s and Ethereum’s prices tumbled by a little more than a quarter in the last month. They may fall further.

There are certainly institutional investors in all of these things, but the meme stocks were where the retail investors tended to congregate. Remember them? A small army of people got bored during the pandemic and started day trading. There’s even a documentary coming out on May 15th on MSNBC, Diamond Hands: The Legend of WallStreetBets. (It will start streaming on Peacock on May 16th.) It’s timely, though perhaps not in the way its makers intended.

The narrative around Gamestonk, if you recall, was that it was a populist uprising against Wall Street. I thought that narrative was bullshit at the time and said so, but narratives are powerful. And one thing this documentary makes absolutely clear is that the narrative mattered most to the people who understood the least about the financial markets.

These investors yoloed into the market during the pandemic, often specifically using upstart service Robinhood. “Nothing against Charles Schwab, or any of the other ones, but they just looked like my father should be there, not me,” says Chris Garcia in the documentary.

Not all of these users were unsophisticated. Alvan Chow, u/JeffAmazon on Reddit, tells the documentary crew that his game is asymmetric betting: using a small amount of capital to make large returns. He calls the GameStonk play the October before it happened. (In the documentary, this post is charmingly read by his brother because he finds his own language “cringey.”) He buys into GameStop at $6 to $8 a share, spending $30,000.

Chow manages to call the top. “When Elon [Musk] tweeted after hours, I remember texting my dad. I was like, ‘Okay, this is the top for sure,’” he says in Diamond Hands. (A hedge fund made the exact same call.) He makes $8 million. In the documentary, he doesn’t describe himself as a master of the universe — just a small fish that made off with scraps.

I’m happy for Chow, but it isn’t his experience that’s haunting me right now.

I’ll start with Alisha B. Woods, who describes herself as having “an addictive personality.” When this all started, she had no savings account. She buys GameStop stock, holds it through the run, cashes out and goes straight into crypto. “So that’s all I do now, is crypto,” she says. And with what she’s done with her portfolio, she tells the filmmakers, “I know I’m set for life. I just have to hold it. Deadass.”

As I sit in on this quarter’s earnings calls, I think of her, and my stomach flips over.

Then there’s Matt Kelly, a former military diver whose car had just been repossessed at the beginning of the pandemic. He’d been diagnosed with a cyst on his brain. “Money to me isn’t an end-all, be-all,” he explains. It meant something else: that “I can not have this constant anxiety that I’m going to fail, that if I start to have more problems with my brain where I can’t work, that my kids will be okay. That we’ll have something to fall back on.”

During the short squeeze, he’s compulsively looking at his phone. He stops sleeping. And when Robinhood and other brokers stop letting retail traders place orders — basically because they’d screwed up their risk calculations and left the retail investors holding the bag — Kelly is incensed. He bought in at an average of $17 a share and sold at $120, after the top. “I didn’t feel like I gained $350,000,” Kelly says. “I felt like I lost a million.”

Incredibly, Kelly went back into GameStop. When Keith Gill told Congress that he liked the stock, Kelly bought again, selling shares in other companies. In the documentary, he tells the camera that he’s holding for $1 million a share. “It could happen now, it could happen five years from now,” he says. “This has turned into a long-term investment for me.”

I truly hope he exited that trade.

The institutions? They’ll probably be fine. Some of these companies were talking about their wallet offerings on the earnings calls — reminding investors that people spend more when they deposit their paychecks directly into PayPal or Block, which means that the companies make more. Robinhood gets paid with every trade. So does Coinbase. Fees are the real way Wall Street makes money.

That’s not the only place people will get squeezed. Block acquired Afterpay, a buy-now-pay-later company, earlier this year. Afterpay is part of a larger group of companies, including Klarna and Affirm, that allow consumers to buy an article of clothing, then pay for it in installments. In 2021, consumers spent more than $20 billion on these point-of-sale loans. This sector was originally meant to challenge credit cards. Now it just seems like another way to wring more money out of consumers.

The retail investors who crowded into the market in the last two years, who may not have correctly judged their risks? I worry. When the line goes down — whether it’s crypto or stonks or anything else — these are the people I fear for.