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Key takeaways:
The GameStop saga shows the strong impact of attention flows on markets, driven by online communities.
Attention flows, boosted by social media, can rapidly change market behavior, as seen with GameStop's stock rise.
Attention flows versus cash flows highlight the growing market influence of public interest over traditional metrics.
Memecoins and internet-native IP show how digital culture can turn intangible phenomena into tradable assets.
Future markets must adapt to the shrinking gap between attention and financial outcomes, driven by the internet.
A few years ago, the traditional financial markets was rudely awaken to the realities of internet culture. Specifically, the power of communities with shared values and beliefs orchestrating collective efforts, with access to real-time information, and moving at warp speed.
This is maybe the rawest example of attention flows versus cashflows, yet.
Attention flows refer to the movement and concentration of public interest, often amplified by social media platforms and online communities. In contrast, cash flows represent the financial transactions moving in and out of a business, reflecting its economic health and performance. Traditionally, these two flows operated independently. Cash is tangible, attention is intangible. This is changing, and will have interesting consequences beyond our imagination.
The Gamestop Saga
GameStop, a brick-and-mortar video game retailer, had been struggling financially due to declining sales and the shift towards digital gaming. In early 2021, the company became the center of a financial storm when members of the Reddit community r/WallStreetBets orchestrated a massive buying spree of GameStop shares. This surge in attention and subsequent buying frenzy caused GameStop’s stock price to skyrocket from under $20 to over $300 in a matter of weeks.
The initial surge was driven by a mix of nostalgia, defiance against institutional investors, and the viral nature of internet culture. Retail investors, galvanized by social media, banded together to buy and hold GameStop shares, forcing hedge funds with significant short positions to cover their losses, further driving up the stock price. The aftermath saw regulatory scrutiny, widespread media coverage, and significant financial losses for some institutional investors.
No Wall Street analyst or discounted cash flow model could predict that.
The Return
When the dust settled, Roaring Kitty’s Twitter/X account went silent. It stayed silent for 3 years.
Until earlier this month. The story repeated itself. The account went live. This time, Roaring Kitty only posted a few memes and videos. The stock 2x’ed in two days.
Let’s zoom out and consider what’s happening here.
It’s obvious that something’s changed when a dormant X account posts a few memes and moves a publicly traded stock ≈200% within two trading days.
While Wall Street analysts keeps punching numbers into spreadsheets, this is what they’re now trying to analyze (if you can’t be bothered to watch, it’s a video with a boy drawing a bunch of male reproductive organs in a notebook).
https://x.com/theroaringkitty/status/1790755264733626879?s=12&t=dminVFRqR6TSXan8kb-yqQ
Attention Flows in Action
The GameStop saga exemplifies how attention flows can drive market behavior. It also shows what happens when the establishment (stock markets, analysts, cashflows) collide with new forces (real-time, self-organizing communities, aggregate attention). It becomes chaotic. Extremely chaotic.
Attention flows have a surge-like pattern. GameStop obviously didn’t become twice as valuable overnight, based on fundamentals. But, the attention that was directed at it, for a brief moment of time, was that valuable.
What’s happening with GameStop is a reduction of the gap between intangible attention and tangible, financial outcomes. Made possible by the instant speed and global reach of the internet.
Then: Attention manifests in the form of product sales, which shows up as a lagging indicator with quarterly company filings.
Now: Attention drives up the stock price immediately.
If you want to watch the full, unrestricted and raw edition, look no further than your favourite memecoins on a decentralized crypto exchange. No need for brokerage accounts or waiting for market opens. Just zero-friction access to 24/7 markets for attention speculation.
In Closing
Who knows what the end of the GameStop saga will be. Who cares, even. The important takeaway here is that the traditional financial markets, the companies operating within them, and the investors and capital allocators surrounding have all functioned in a carefully balanced equilibrium. The equilibrium is based on rules that everyone understands and optimize for: friction/control (market opening hours) and information speed (lagging reporting). These rules also maintains a certain power dynamic. Beneficial to those on the right side of the scale.
This is the old status quo. And it’s breaking. Fast. Actually, it already broke.
Traditional companies and analysts will have to adapt to the new reality quickly. But, it will still be chaotic. We’ll have forces trying to uphold the structure that’s made everything dandy on Wall Street for many, many decades on one side. On the other, the gap between attention and value will continue closing.
You may spend a thousand hours polishing your discounted cashflow model, but it won’t fucking matter if a highly aligned community directs its attention at the same company. At least not in the short term.
While this battle between old and new waves back and forth, more people and companies will gradually seek out the new, transparent structure that is actually capable of functioning with these new mechanics.
They’ll move onchain.
Collect this post as an NFT.
