Market Analysis

What Investors Can Learn From 2021’s Frothy Pockets

Early 2021 provided a windowpane into euphoria—what does it mean for investors?

Editors’ Note: MarketMinder does not make individual security recommendations. Those mentioned in the below simply help illustrate a broader theme we wish to highlight.

An app-based brokerage at the center of January’s “meme stock” chaos made its trading debut last Thursday … and promptly laid an egg, before its share price soared this week. That seesaw action typified the price movement of the “hot” investments—e.g., cryptocurrencies and special-purpose acquisition companies (SPACs)—from earlier this year. While many of those categories have since imploded, global stocks have continued to climb and register record highs. In our view, that suggests frothy euphoria hasn’t spilled over to stocks—a sign that we aren’t yet at a market peak.

Take a stroll with us down memory lane, dear reader, to early 2021, when bitcoin’s pandemic boom went nuts: It soared from $29,001 to $40,797 in January’s first eight days—and then gave back most of those gains by month end.[i] The coin’s volatile ascent continued over the next several months, closing at an all-time high of $63,503 on April 13.[ii] Proponents declared bitcoin and its crypto brethren’s moment had arrived—an irrational excitement perhaps best exemplified by dogecoin, a joke cryptocurrency that jumped over 800% in 24 hours in late January.[iii]

The enthusiasm wasn’t confined to crypto. Billionaires and celebrities heralded SPACs as a ticket to owning early stage, cutting-edge businesses (e.g., electric vehicles and space travel)—and quick riches. Non-fungible tokens (NFTs)—digital collectibles—fetched millions. Online forums touted meme stocks, sending the share price of a brick-and-mortar video game store to the moon. Anecdotally, your friendly MarketMinder Editorial Staff received many questions about these topics—a sign regular folks were curious (and perhaps tempted to buy) these hot assets.

Fast forward to the present, and what was hot is now … not. After peaking on April 13, bitcoin fell -53.1% to $29,807 on July 20—not far off where it started the year (it is around $41,000 as of this writing).[iv] Other cryptocurrencies have fallen even more dramatically, including Dogecoin (down -71.4% from its May 7 high).[v] SPACs have struggled, too. Issuance has slowed since Q1, and high-profile SPAC acquisitions have flopped. The futures of electric vehicle companies Lordstown Motors and Canoo—both of which ousted their founders and CEOs—look hazy, and their share prices have plummeted (-70.4% and -44.6% year to date, respectively).[vi] Another EV startup that went public via SPAC, Nikola, faces an almost equally uncertain future, as its founder faces fraud charges.

Regulatory uncertainty appears to be a big headwind for both categories. Chinese regulators intensified their crypto crackdown in May, roiling sentiment.[vii] Similarly, the SEC surprised SPACs in April with an order to adjust their financial reporting—leading to the disclosure of more serious problems.[viii] These wild movements—both up and down—over the past seven months recall legendary investor Benjamin Graham’s quote: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” That is, sentiment can buoy investor excitement in the short term, but over the longer term, fundamentals win out.

Now, at the time, many pundits equated the early-2021 environment to the 2000 tech bubble. But despite the publicity, frothy sentiment seemed confined to narrow slices of the market—and pockets of froth aren’t uncommon during bull markets. During 2009 – 2020’s bull market, gold and silver had a moment in the early 2010s; biotech stocks in 2014; bitcoin (the first time) in 2017. That irrational enthusiasm didn’t infect broader markets. This time, even in the case of meme stocks’ January surge, raging euphoria didn’t dominate the space. Some investors were chasing pie-in-the-sky visions, to be sure, but others seemed to be applying fundamental analysis and traditional value investing, not blinded by greedy emotion.   

If the euphoria we saw this year was widespread and had broadly infected stocks, we would expect to see broad equity indexes fall alongside the highfliers. Since its April 13 high, bitcoin is down -39.9%—yet global stocks are up 6.2% over the same stretch.[ix] The broader SPAC space isn’t faring as poorly as bitcoin, but the IPOX SPAC Index is down -6.5% year to date through July.[x] Over that period the S&P 500 and MSCI World rose 18.0% and 15.1%, respectively.[xi] Meme stocks have alternated from boom to bust and back, but much broader global markets have seen a relatively smooth climb to those solid returns.

Though euphoria may not have taken hold broadly yet, we do think investors should be vigilant in monitoring for it—especially because we see plenty of signs that stocks are behaving like it is a late-stage bull market. If investor sentiment follows its typical path in a maturing bull market, optimism will eventually burgeon into euphoria. To be clear, we don’t think we are there yet. But the rise—and implosion—of cryptocurrencies, SPACs and other hot investments from earlier this year gave you a windowpane into true euphoria.

In our view, that view can help investors prepare for when it takes hold more broadly. If you remained disciplined and didn’t buy the hype of 2021’s early-year darlings, you deserve kudos. Remember that mindset for the future. If you gave into the hype and chased heat, don’t hang your head in shame. You fell victim to what Fisher Investments Founder and Executive Chairman Ken Fisher calls “The Great Humiliator” (TGH). The market likes nothing more than to make investors feel silly. But as Ken has written about extensively, taking TGH’s lessons to heart—accumulating regret and shunning pride—is the best thing investors can do in that case. When euphoria arises again, you might just be better prepared to handle it.



[i] Source: CoinMarketCap, as of 8/4/2021. Bitcoin price in USD, 12/31/2020 – 1/8/2021.

[ii] Ibid.

[iii] “Reddit Frenzy Pumps Up Dogecoin, a Cryptocurrency Started as a Joke,” Arjun Kharpal, CNBC, January 28, 2021.

[iv] Source: CoinMarketCap, as of 8/4/2021. Bitcoin price in USD, 4/13/2021 – 7/20/2021.

[v] Ibid. Dogecoin price in USD, 5/7/2021 – 8/3/2021.

[vi] Source: FactSet, as of 8/4/2021. Share price of Lordstown Motors and Canoo, 12/31/2020 – 8/3/2021.

[vii] Ibid.

[viii] “A Wave of Earnings Restatements Slams a Hot Market,” Jean Eaglesham, The Wall Street Journal, July 2, 2021.

[ix] Source: CoinMarketCap and FactSet, as of 8/4/2021. Bitcoin price in USD and MSCI World Index return with net dividends, 4/13/2021 – 8/3/2021.

[x] Source: Refinitiv, as of 8/4/2021. IPOX SAC Index, 12/31/2020 – 7/31/2021.

[xi] Source: FactSet, as of 8/4/2021. S&P 500 Total Return Index and MSCI World Index return with net dividends, 12/31/2020 – 7/31/2021.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.