Title: “Chatting with ‘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 “degen” amateur traders, a high-risk trading style is making a comeback. These traders are passionate about high-risk trades that are known for being disconnected from traditional investment evaluations. Some are willing to pour large sums of money into specific stocks or cryptocurrencies just to be part of 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 that champions bold market bets and questions investment norms: you only live once, so why worry about traditional financial advice?
These self-proclaimed “degenerates” use online aliases to boast in chat rooms about buying obscure digital tokens, meme stocks, and speculative options contracts. They are more interested in the thrill these trades bring than in the fundamentals of these assets. These trades can bring almost instant profits, but if the bet fails, it can lead to massive losses.
The “degenerates” are one of the factors driving the “meme stock frenzy,” such as the recent illogical movement of GameStop shares. When these internet-driven traders band together, it can trigger significant fluctuations in asset prices. All it takes is to ignite a meme.
In May this year, as all investment types, from major indices to meme stocks, were soaring, there was a surge in content mentioning “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 buying lottery tickets.”
During the COVID-19 pandemic when people were confined to their homes and received extra cash from stimulus programs, short-term trading saw explosive growth. Apps like Robinhood made trading simple and fun, and across the industry, brokers eliminated commissions and offered fractional share trading, lowering investment costs more than ever before.
Now, investors are betting on everything, from digital tokens with no intrinsic value to high-risk options that could become worthless in minutes or hours. Robinhood introduced 24-hour trading last year and increased the number of stocks available for overnight trading this year, allowing degenerate traders to invest in stocks round the clock and try to catch certain stock movements.
A trader named Keith Gill, also known as “Roaring Kitty” or “DeepF—Value,” became the ultimate hero for many degenerate traders, although he claims to be a value investor. In 2021, he heavily bet on GameStop and shared his investment information online, leading a meme stock revolution. Novice investors flocked to him, driving the stock price of the struggling video game retailer to skyrocket. They caused massive losses for hedge funds shorting the stock, drawing attention from the U.S. Congress, regulators, and Wall Street. Gill’s last post on Reddit in 2021 showed that his GameStop stock holdings were valued at around $30 million.
Since then, trading volumes for brokers have fallen from the highs during the COVID-19 pandemic. Many short-term traders have returned to their regular jobs.
Some on Wall Street doubt whether the meme stock craze is just a passing fad. But the die-hards remain committed. Along the way, some markets have become indistinguishable from casinos.
Last month, “Roaring Kitty” reappeared on X platform, reigniting the trading frenzy for GameStop and other meme stocks. On Sunday, an account related to Gill shared a screenshot on Reddit showing a holding of over $180 million in GameStop, sparking a new round of roller-coaster trading. The stock has more than doubled over the past month.
Although the odds are slim, bets related to GameStop and other stocks favored by degenerate traders have seen significant growth, pushing the daily average options trading volume this year to nearly 47 million, marking a historical high in data from the Options Clearing Corp. since 1973. Most of this activity is concentrated in short-term trading, where investors could make a fortune or lose everything.
For instance, Cboe Global Markets data shows that if a trader bought options tied to GameStop’s rise to $20 just before the recent stock market surge, the return could exceed 2,000%.
The U.S. stock market has been on a tear, with the S&P 500 index delivering an annualized return of nearly 11% over the past decade. Meanwhile, the almost risk-free return on many money market funds hovers around 5%, reaching some of the highest levels in over a decade.
Despite this, some degenerates feel that the returns from this somewhat dull investment are not enough. They crave bigger profits and hope for a big win that could bring substantial changes to their lives.
While data shows a robust U.S. economy, inflation has driven up grocery prices and rental costs. The Federal Reserve’s move to raise interest rates to curb inflationary pressures has also pushed up mortgage rates.
Young people, especially, feel the pain of record-high home prices and mounting student debt. Some worry that they will never earn enough money to reach the milestones achieved by previous generations. Long-term surveys of American youth post-COVID-19 show that the disillusionment of the Z generation surpasses that of any previous generation still alive.
Matt Kielczewski, 32, started investing in cryptocurrencies in 2017 because he was drawn to the promise of “financial freedom.” He had opened an account on Coinbase to buy a ticket for a solar eclipse festival, needing to pay with Bitcoin. The remaining $10 in his account turned into $100 after six months.
“That’s when I realized,” he said. “This magical digital currency is changing people’s lives.”
While working as an underground DJ in Colorado, the outbreak of the COVID-19 pandemic wiped out Kielczewski’s income. Now, he works in marketing in the cryptocurrency industry and lives in Lisbon.
Initially, degenerate trading made him feel like he belonged to an organization with a higher purpose than individual gain: a community of like-minded individuals. Since then, he has become wary of scammers and now sees the “enormous toxicity” present in this space. He still trades weekly but now takes a more buy-and-hold approach with cryptocurrencies.
Data from cryptocurrency data provider CCData shows that centralized cryptocurrency trading volumes surged to historic highs in March. This includes trading of Bitcoin and degenerate investments in so-called meme coins; these meme coins are created for fun and often reference popular online inside jokes. Earlier this year, a cryptocurrency called Dogwifhat, linked to a virtual image of a Shiba Inu wearing a pink hat, was worth just a few cents, but its recent trading price is around $3.36, a gain of over 2,000%. There is even a Degen coin that has seen significant fluctuations in its value.
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 since data from Cboe Global Markets in 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 circle before expanding to other markets. Some started seeing this term during the “DeFi Summer” in 2020, when a significant amount of funds flowed into the decentralized finance component of the cryptocurrency world.
Clearly, 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 share of options activity originating from retail investors soared to over 18%, the highest level since at least August 2020.
Traders might say they are “degening” on meme coins, akin to some traders calling themselves “apes” or saying they are “aping” a particular asset with a significant position. Uniting and coordinating trades on platforms like Reddit or Discord is seen as a brave act. Those willing to take on such high risks are celebrated by their peers.
“In internet parlance, ‘degenerate’ could actually be a term of endearment,” said 41-year-old assistant anesthetist Dustin Burnham from Melbourne, Florida. “It might imply a willingness to take risks that others wouldn’t to achieve a goal.”
Burnham says he doesn’t consider himself a degenerate investor, but he is active in some communities filled with ape emojis.
Few retail investors can make even a fraction of the wealth that Gill seems to have acquired. A 2023 academic study found that many retail investors lost money on options trading in the market, especially around events like earnings reports. Many investors also failed to time the cryptocurrency market well. For example, new users flocked to the cryptocurrency market in 2021 near its peak, only to suffer significant losses in the subsequent crash.
After the GameStop saga in 2021, the U.S. Securities and Exchange Commission 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, 38, based in Berlin, has been trading cryptocurrencies since 2017 and is currently working in the cryptocurrency industry. Her home country, Argentina, has currency restrictions, making the promise of freedom and transparency offered by cryptocurrencies appealing to her.
While she engages in quite a bit of meme coin trading and enjoys finding fun in the market, she is skeptical of the “degenerate” spirit.
“It ultimately changes the way you look at things. You no longer see some things as financial tools,” she said. “You just get sucked into this microculture.”
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