READING: From 2021: Matt Levine on Elon Musk as Meme-Purveyor: "Things Are Valuable Not Based on Their Cash Flows, But on Their Proximity to Elon Musk"
Matt warns: reading this will make you stupider; writing it made him stupider; religious awe and social coördination as supplements to fundamentals as sources of enduring value…
Matt Levine (2021): Elon Musk Picks the Money Now (February 8): ‘My model of the GameStop Corp. trade [was]… an “honest pump”: People got together on the internet… decided that if they all bought the stock of GameStop at the same time then it would go up…. This was correct…. Just a straightforward understanding of how supply and demand work. Nor was there all that much in the way of fundamental analysis of the underlying cash flows of GameStop’s business…. Once it hit, I don’t know, pick a number, $65.01 on Jan. 22, say, no one was in it for the cash flows. GameStop was worth $200 because more people would buy it and then it would be worth $400; it was a pure social coordination game with no connection to the business of an actual company.
One assumes that this has to end badly for somebody…. Still, you could push back on that assumption. Social coordination is actually a pretty big and robust source of value…. Last week I imagined a venture capitalist blogging about GameStop in 2027, writing “The thing I like about GameStop is not its underlying cash flows, but the fact that it is a scarce digital store of value.” I was kidding, but one thing that I have learned in recent years is that everything is simultaneously a joke and serious.
Also Elon Musk tweeted about GameStop, and the way finance works now is that things are valuable not based on their cash flows but on their proximity to Elon Musk. A better anthropologist than me should probably take a look at this phenomenon. Musk is the richest person in the world, and in a dynamic, fun, traveling-to-Mars sort of way. It makes sense that his pronouncements have a certain religious character, that his tweets can endow arbitrary objects with mana. If the richest person in the world tweets “Gamestonk!” then I think that means that, if you buy GameStop stock, you will partake in his wealth and dynamism at a remove; you will get rich and have fun doing it. (Not! Investing! Advice!)… Surely at some subconscious level people want to order their lives in accordance with the cryptic instructions of a charismatic flying zillionaire.
So, “Gamestonk!” And red satin shorts blessed by Musk sell at a huge markup on Ebay. And I have written about Signal Advance Inc., a penny stock that soared 5,100% after Musk tweeted “Use Signal,” about an entirely unrelated app. That stock is still up 350% from where it was before Musk tweeted a month ago. It is an Elon Musk cargo cult; a coordination game—“if we all buy this it will go up, so let’s all buy it”—inspired by an arcane reading of apocryphal Musk scripture.
Also Tesla Inc. stock trades at 1,210 times trailing earnings, is another fact that might be relevant here.
Anyway Dogecoin is up: “Dogecoin, the tongue-in-cheek cryptocurrency featuring a Shiba Inu dog as a mascot, briefly touched a record Monday after billionaire Elon Musk, rapper Snoop Dogg and Kiss bassist Gene Simmons tweeted about it…. “A market capitalization of $10.5 billion during Asian trading hours Monday before pulling back…”. And here is Billy Markus, who built Dogecoin in 2013: “‘The idea of dogecoin being worth 8 cents is the same as GameStop being worth $325’, said Mr. Markus, 38 years old. ‘It doesn’t make sense. It’s super absurd. The coin design was absurd.’” That same article notes: “A vocal group of buyers on Reddit have made it their mantra to push dogecoin to $1.”
Dogecoin is GameStop stripped of all the distracting reality. No one on Reddit is going to publish a due diligence post about how the market undervalues Dogecoin’s cash hoard and customer loyalty. There are no Dogecoin shorts to squeeze, no Dogecoin options market makers to get caught in a gamma trap. The serious arguments for Bitcoin—its algorithmically enforced scarcity, its technological sophistication, its widespread adoption—are also conveniently missing. Dogecoin is just “if we buy this thing it will go up, so let’s buy it; also it will be fun and Elon Musk tweeted about it.”
Look, I understand that I have gotten stupider by typing all of that, and you have gotten stupider by reading it, but it’s gonna get worse. I do think it is pretty obvious that the internet is rewiring social relationships in profound ways, and that we are still in the early stages of that rewiring and the even earlier stages of trying to understand it. Money and value are artifacts of social relationships; why shouldn’t their meaning change as social media warps our brains and our society? Money and value are coordination games; what we use for money depends on the channels that we use to coordinate social activity. Once society was mediated by governments, and we used fiat currency. Now society is mediated by Twitter and Reddit and Elon Musk, so, sure, Dogecoin… <https://www.bloomberg.com/opinion/articles/2021-02-08/elon-musk-works-his-magic-on-dogecoin-and-bitcoin?sref=1kJVNqnU>
Reference:
Levine, Matt. 2021.Elon Musk Picks the Money Now. Bloomberg. February 8. <https://www.bloomberg.com/opinion/articles/2021-02-08/elon-musk-works-his-magic-on-dogecoin-and-bitcoin?sref=1kJVNqnU>.