Cash Fuels Memes, SPACs and NFTs

The transition from the COVID-induced lockdown economy into a supersized growth one has been fueled by a world awash in cash. Global central banks and governments have injected trillions of dollars to shield the most vulnerable from the financial fallout from the crisis, but those same forces have created opportunities for investors who are willing to assume risk. Given that April is Financial Literacy Month, it’s time to add some new words and terms to your financial lexicon, ones that have emerged in this new period of unbounded optimism.

Meme Stock: Meme is defined as “an amusing or interesting item (such as a captioned picture or video) or genre of items that is spread widely online especially through social media,” according to Merriam-Webster. Meme stock refers to equities that attract investors through social platforms and discussion board sites like Reddit and Twitter.

Like the dot-com stocks of the late 1990’s, these companies have attracted retail investors. But in the 2021 iteration of the boom, speculation was driven not only by the desire to make money, but also by the goal of forcing large, institutional investors, who had bet against companies like GameStop and AMC Entertainment, to suffer losses.

Prices of meme stocks have come down from their all-time highs, but still remain up dramatically. There’s even a way to bet on them, without picking a particular one: VanEck launched an exchange traded fund called Vectors Social Sentiment (ticker “BUZZ”). This reminds me of the slew of tech funds of the early 2000’s, which flamed out when that bubble burst. The big question is whether the meme stock mania was a pandemic-related occurrence or a longer lasting trend.

SPAC: SPAC is an acronym for “special purpose acquisition company,” which is a type of blank check company, as defined by the Securities and Exchange Commission (SEC). SPACs are essentially shell companies that are created to transact a deal (a merger or an acquisition) with a not-yet-determined other company (or companies), which actually operate a business. To do so, the SPAC registers with the SEC to go public, raises and pools funds, and then has to find a target and spend the funds on a deal within two years.

SPACs are seen as a quick way for large investors, who have a lot of cash on hand right now, to take private companies public. The added benefit, according to lawyers, is that SPAC sponsors have less liability than they would doing a traditional IPO, because SPAC rules are somewhat looser when it comes to financial projections. The SEC has warned that the SPAC craze is already on their radar.

NFT: To understand NFTs (Non-Fungible Tokens), let’s start with the word fungible, which means something such as a stock, bond, commodity, or a currency, that can easily be exchanged or traded for something else of the same value or type. For example, a dollar bill that you have can be swapped with any other dollar bill and the value is still the same.

A non-fungible object, like a piece of art or an antique car, has its own unique value. Now let’s add in the token part. A token acts as the certificate of authenticity of the non-fungible asset. In the case of NFTs, the authentication is not a physical slip of paper, but a digital record that acts as proof of ownership over an asset or collectible, like a piece of digital art, a video clip, music or an audio file, or even an article.

Here’s where it gets a little tricky: the authentication is itself unique, it is computer code, stored and protected on a shared public exchange. That public exchange is known as blockchain, the digital ledger that is the backbone of crypto assets like bitcoin. Once created, an NFT can’t be counterfeited, which makes it useful for creative folks, like artists, musicians, or writers. NFTs also allow creators to receive royalties if others were to bid up the price in the future.