Matt Levine: The Boredom Markets Hypothesis

Johnny HopkinsMatt LevineLeave a Comment

In his recent article on Bloomberg, Matt Levine discussed the current craziness in markets citing Gamestop, Non-fungible tokens, and the surge in crypto. He also discussed his ‘boredom markets hypothesis’ to help explain why this may be happening. Here’s an excerpt from the article:

In the last dumb, dumb year I have proposed two very dumb theories of financial markets, both of which seem relevant to Dogecoin:

  1. The boredom markets hypothesis says that people will buy stocks when buying stocks is more fun than other things they could be doing for fun.
  2. The Elon markets hypothesis says “that things are valuable not based on their cash flows but on their proximity to Elon Musk.”

Are those hypotheses self-limiting in some way? The point of the BMH (boredom markets hypothesis) was that as pandemic lockdowns eased, people would go back to doing things that are actually fun, and spend less time day-trading stocks.

But I did not fully reckon with the possibility that people would spend the pandemic lockdowns not just trading stocks, but also making it more fun to trade stocks. Partly that is by making the trading experience more fun and social, with Reddit boards and sea chanteys to make your favorite stock a bit more exciting.

Partly it is by finding more fun things to trade than stocks; why buy Tesla Inc. stock when you can buy an imaginary coin named after a Shiba Inu meme that Elon Musk will tout on ‘Saturday Night Live’? Partly it is just through the traditional way that trading is sometimes fun: Everything keeps going up, so it is fun to buy the things because you make money.

I suppose the boredom-driven rally ends through some combination of (1) people can do normal fun things again and (2) like, Dogecoin drops for fundamental reasons (?) and it stops being free money all the time?

You can read the entire article here:

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