The GME squeeze and the Dogecoin rally: how social media can affect stock and crypto markets

4 Abstract 2021 has been so far a peculiar year for financial markets. In particular, two important events made clear how social media (SMe) can effectively affect both crypto and stock markets: the short squeeze of GameStop (ticker: GME) in January and the Dogecoin cryptocurrency’s rally on the end of April/beginning of May. In fact, both cases have the same characteristic of being born on the Internet as a meme and then spread out and grown into something massively bigger. In this bachelor’s degree thesis, we are going to analyze these two events in order to highlight the interconnection between SMe and both stock and crypto markets by presenting findings of previous studies and by making further investigation in light of these two recent cases. In so doing, this paper contributes to better understand the effects of SMe on stock and crypto markets and to show the need of regulation concerning the interaction between these two only seemingly apart environments. Introduction Social media (SMe) have nowadays become part of our lives and our society and in recent years many studies have studied how these virtual spaces might or do influence the economic world at large. So far, the main focus was on the consequences of statements and announcements of companies (Campbell et al., 2021) and their stakeholders (Gomez ‐Carrasco & Michelon, 2017) on SMe as well as on how high coverage (or buzz) on SMe is usually associated with higher volatility and trading volume per share (Jiao et al., 2020). However, the GME squeeze and the Dogecoin rally of 2021 have ultimately shown the massive influence and power of SMe (Reddit in the GME squeeze case and Twitter in the Dogecoin rally case) as a forum of discussion and their ability to involve and stimulate the investments of many casual retail investors. Furthermore, these events demonstrated that the so-called pop- and meme-cultures’ waves have a significant impact on crypto and stock markets. In this sense, many scholars even questioned whether SMe might be considered a facilitator of market distortions (Ante, 2021; Chartier et al., 2021) and whether events like the above-mentioned ones might be considered as market manipulation (Allen et al., 2021; Burnette, 2021; La Morgia et al., 2021; Nizzoli et al., 2020). This thesis focuses on these two case studies using the recent findings of various scholars to ultimately ascertain the effects of SMe and its communities on both the crypto and the stock markets and whether SMe represent a possible tool for market manipulation. Actually, it is important to remark that this investigation is carried under the US legal framework which still uses the Rule 10b-5 of SEC’s ’34 Act in order to detect and punish traditional market manipulations (Win, 2021). As we will see later in this thesis, such enactment fails to regulate and punish the so- called open market manipulation, which is defined as “a manipulative scheme where the alleged scheme is accomplished through the use of <facially legitimate open market transactions.> The manipulator has not engaged in any conduct that is inherently illegal, such as fictitious transactions, or false reporting. However, these