Title: “Chatting About the ‘Degenerate Traders’ Behind the New Meme Stock Craze”
Authors: Hannah Miao, Gunjan Banerji, THE WALL STREET JOURNAL
The American stock market is filled with “degenerates.”
Driven by self-proclaimed “degenerate” amateur traders, a high-risk trading style is making a comeback. These traders are passionate about high-risk trades that have nothing to do with traditional investment evaluations. Some are willing to invest large sums of money in specific stocks or cryptocurrencies just to participate in a trend. Others are in it for the fun and excitement.
In their language, “Degen” can be a noun, adjective, or verb, popular mainly among young people. It’s a self-deprecating identity, with some tracing it back to the term “degenerate gambler.” It embodies a spirit of daring market bets and questioning investment norms: why worry about traditional financial advice when you only live once?
These self-proclaimed “degenerates” use online aliases to boast in chat rooms about buying obscure digital tokens, meme stocks, and speculative options contracts. They often prioritize the excitement these trades bring, rather than the fundamentals of the assets. These trades can result in almost immediate profits, but if the bets fail, they can also lead to significant losses.
“Degenerates” are one of the driving factors behind the “meme stock frenzy,” such as the recent erratic movement of GameStop stock in the past few weeks. When these internet-driven traders band together, they can trigger significant asset price fluctuations. All it takes is to ignite a meme.
In May of this year, amidst soaring major indices and meme stocks, there was a surge in mentions of “degenerates” and “degenerate trading” on social media. According to Hootsuite’s social media performance engine, mentions of “degenerates” and its variants exceeded 370,000 on various social media platforms like Reddit and X, compared to less than 1,000 in April.
“This money comes quickly,” said 39-year-old former professional poker player Daniel Moravec, who calls himself a “degenerate trader.” “Buying some options or high-risk stocks is better than playing the lottery.”
During the COVID-19 pandemic, with people staying at home and receiving extra cash from stimulus programs, short-term trading saw explosive growth. Apps like Robinhood made trading easy and fun, while across the industry, brokers eliminated commissions and offered fractional share trading, lowering investment costs more than ever.
Today, investors are betting on everything from digital tokens with no intrinsic value to high-risk options that can become worthless in minutes or hours. Robinhood introduced 24-hour trading last year and expanded the number of stocks available for overnight trading this year, allowing degenerate traders to invest in stocks around the clock and try to capture certain stock movements.
One trader, Keith Gill, also known as “Roaring Kitty” or “DeepF—-Value,” became a hero to many degenerate traders by heavily betting on GameStop in 2021, leading a meme stock revolution. Novice investors joined his ranks, driving up the stock price of the struggling video game retailer. They caused significant losses to hedge funds that shorted the stock, attracting the attention of the U.S. Congress, regulators, and Wall Street. Gill’s final Reddit post in 2021 showed that his GameStop holdings were worth around $30 million.
Since then, trading volumes for brokers have receded from the highs of the COVID-19 pandemic. Many short-term traders have returned to their regular jobs.
Some Wall Street insiders doubt whether the meme stock craze is just a flash in the pan. But the die-hards are sticking around. Along the way, some markets have become indistinguishable from casinos.
Last month, “Roaring Kitty” reappeared on X, igniting another frenzy of trading in GameStop and other meme stocks. On Sunday, an account associated with Gill shared a screenshot on Reddit showing holdings in GameStop exceeding $180 million, sparking a new round of roller-coaster market action. The stock has surged over 100% in the past month.
Despite the odds, bets associated with GameStop and other favored stocks of degenerate traders have surged, leading to a near-record daily average options trading volume of nearly 47 million this year, setting a historic high for the Options Clearing Corp. since 1973. These activities are mostly focused on short-term trading, where investors can make a large profit or lose everything.
For example, Cboe Global Markets data shows that if a trader bought options tied to GameStop’s surge to $20 before the recent stock market rally, the return could exceed 2,000%.
The U.S. stock market has been on a winning streak, with the S&P 500 Index averaging a nearly 11% annual return over the past 10 years. Meanwhile, the almost risk-free returns of many money market funds are around 5%, reaching the highest levels in over a decade.
Nevertheless, some degenerates feel that the comparatively mundane returns from traditional investments are not enough. They crave bigger profits and hope for a big win to bring substantial changes to their lives.
Despite data showing a strong U.S. economy, inflation has driven up grocery prices and rental costs. The Federal Reserve’s approach of raising rates to curb inflationary pressures has also pushed up mortgage rates.
Young people, especially those burdened by record-high home prices and mountains of student debt, have a deep sense of disillusionment. Some worry they will never earn enough money to reach the milestones achieved by previous generations. Longitudinal studies of American youth show that the disillusionment of the Z generation after the COVID-19 pandemic surpasses that of any previous generation still alive.
32-year-old Matt Kielczewski started investing in cryptocurrencies in 2017 because he was drawn to the promise of financial freedom. When he opened an account on Coinbase to buy a ticket to a solar eclipse festival, he had $10 left in the account, which turned into $100 six months later.
“That’s when I realized,” he said. “This magical digital currency is changing people’s lives.”
During the COVID-19 outbreak, which wiped out his income as an underground DJ in Colorado, Kielczewski turned to marketing in the cryptocurrency industry and now lives in Lisbon.
Initially, degenerate trading made him feel like he belonged to an organization where the mission was greater than individual gain: a community of like-minded individuals. Since then, he has become wary of scammers and now sees the “enormous toxicity” that exists in this space. He still trades weekly but now adopts a buy-and-hold strategy for cryptocurrencies.
According to data from cryptocurrency data provider CCData, the trading volume of cryptocurrencies on centralized exchanges surged in March, reaching historic highs. This includes trades in Bitcoin and degenerate investments in so-called meme coins, created for fun and often referencing popular internet inside jokes. Earlier this year, a cryptocurrency called Dogwifhat, linked to a virtual image of a Shiba Inu dog wearing a pink hat, was worth only a few cents, but its recent trading price is around $3.36, a growth of over 2,000%. There is even a Degen coin with significant price fluctuations.
The proportion of low-priced stocks in U.S. stock trading has also increased this year, reaching 14% by the end of May, a new high as shown in data from Cboe Global Markets since 2016.
Degenerates and their ilk are also flocking to online sports betting. The National Collegiate Athletic Association surveyed 3,527 individuals aged 18 to 22 last year and found that 67% of students living on college campuses had engaged in sports betting.
It’s difficult to determine where the term “degen” originated or how many traders classify themselves as such. Many say it was first adopted in the cryptocurrency community and then expanded to other markets. Some began seeing this word during the “DeFi Summer” of 2020 when a significant amount of funds flowed into decentralized finance components of the cryptocurrency world.
It’s clear that this term and trading style are gaining popularity. With the surge in mentions of “degenerates” and “degenerate trading” online in May, data from J.P. Morgan Global Quantitative and Derivatives Strategy shows that the proportion of options activity driven by retail investors rose to over 18%, the highest level since at least August 2020.
Traders may say they are “degening” things like meme coins. This is similar to traders who call themselves “apes” or say they are “aping” a certain asset, meaning they are blindly following and betting on it. Uniting and coordinating trades on platforms like Reddit or Discord is seen as a brave act. Those who dare to take big risks are praised by their peers.
“In online jargon, ‘degenerate’ could actually be a nickname,” said 41-year-old assistant anesthetist Dustin Burnham from Melbourne, Florida. “It may imply a willingness to take risks that others wouldn’t to achieve their goals.”
Burnham says he doesn’t consider himself a degenerate investor, but he is active in communities filled with ape emojis.
Few retail investors can earn even a fraction of the wealth that Gill seems to have acquired. An academic study in 2023 found that many retail investors spent money unnecessarily on options market trades and ended up losing money, especially around events like earnings releases. Many investors also failed to time their entry into the cryptocurrency market well. For example, new users swarmed into cryptocurrencies in 2021 when prices peaked, only to suffer significant losses in the subsequent crash.
Following the GameStop saga in 2021, the U.S. Securities and Exchange Commission (SEC) proposed setting guardrails related to trading apps to curb what regulators see as gamification of trading. So far, such measures have faced strong opposition from the brokerage industry and Congress.
Maria Paula Fernandez, a 38-year-old cryptocurrency trader based in Berlin, has been trading cryptocurrencies since 2017 and currently works in the cryptocurrency industry. Her home country of Argentina has currency restrictions, making the promise of freedom and transparency in cryptocurrencies appealing to her.
Although she engages in quite a bit of meme coin trading, enjoying the thrill of the market, she is skeptical of the “degenerate” spirit.
“It will eventually affect the way you see things. You will no longer view things as financial instruments,” she said. “You are just sucked into this microculture.”
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