Money 2021: The Year of ‘Oh Wait, That’s Never Happened Before’

This year scrambled nearly everything we knew, or thought we knew, about money and the markets. So much so that when cataloguing all of 2021’s weirdness, the mind struggles with where to begin. Maybe it’s with Rivian, the automaker whose value soared to $100 billion, topping both GM or Ford, after its shares debuted in November — never mind that the company had shipped not a single car. And who could forget the shortages — bicycles, chicken wings, semiconductors, staff — and the price spikes that followed? Then there was the explosion of the NFT market. The artist Beeple, for example, sold a non-fungible token (NFT) for $69 million USD at Christie’s. And let’s not forget about those weeks this fall when public discourse revolved around whether the world’s largest economy should mint a $1 trillion coin to avoid defaulting on its national debt. The weirdness only extends from there: the Toronto shack that sold for nearly C$2 million; the hackers who returned roughly $600 million USD of stolen crypto because people just, like, asked them to; a McDonald’s franchise so understaffed that it paid people to attend interviews. And, of course, arguably the biggest money story of the year: inflation.

Together these economic oddities taught us that money now follows entirely new, often exciting, occasionally curious rules. So, with a new year bearing down, we thought we’d reflect on the four most salient lessons we learned these past 12 head-spinning months. Because who knows what fresh strangeness 2022 holds.

#1: Stocks are memeable

The subtext of, and catalyst for, this year’s biggest economic stories was that, this time a year ago, North America was recovering economically from the pandemic recession at warp-speed, thanks, in large part, to the trillions of dollars that central banks had injected into the economy. And, as a result of all this government support, after the spring 2020 COVID crash, most Canadian and U.S. households ended up with more money in their pockets, which wasn’t the case after the 2008 recession or after the 2000 downturn. And people didn’t just sit on their cash: they found increasingly novel, and at times outright bizarre, ways to spend it.

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The first sign of strangeness arrived in January, setting an unhinged tone for the year, when members of the subreddit WallStreetBets organized a successful “short squeeze” against hedge funds betting against shares of Gamestop, an increasingly obsolete yet nostalgia-inducing retail chain. Shares in Gamestop (ticker symbol: GME) surged by more than 100%, as Very Respectable News Outlets across the land raced to track down and interview a Redditor with the username DeepFuckingValue, who apparently started the craze. (Media’s weird year is a whole nother story.)

#2: A company doesn’t really need to make money to be valued at $1 trillion

Even though many small investors lost big on GME, and Gamestop hasn’t rebounded as some Redditors had hoped, corporate earnings did soar broadly, with one company after another posting record profits. And as they did, stock prices rose too, with money pouring into the markets from pro investors’ steely downtown offices and from daytraders’ basements alike. By late November, the S&P 500 had reached records at least 66 times (!) since the first of the year, just shy of the all-time record of 77, set in 1995. Canada’s primary stock index, the TSX, echoed the S&P 500, posting some of its strongest gains in a decade. But this deluge of cash into the markets created its own weirdness: in October, Tesla’s worth topped $1 trillion, which, as John Cassidy pointed out, is larger than the market capitalization of 10 other carmakers combined, including Toyota, Volkswagen, and General Motors. And Tesla didn’t even turn a profit selling cars till July. (Weirdness on top of weirdness: the company, in addition to making electric cars, profited from buying Bitcoin.)

Some of the big stock gains could owe to “speculative nonsense,” as the investor J. Christopher Flowers told Bloomberg recently. And maybe he has a point. The U.S. stock market’s price-to-earnings ratio — how expensive companies’ shares are versus how much money they actually make — is now close to 40. The last time it exceeded that level was right before the 2000 dot-com crash. Money on top of money, building and compounding. An undercurrent of concern moving forward is when will the stock market’s seemingly unstoppable, but definitely stoppable, rise come to a halt? Nothing can go on forever, and, as with all markets, the higher the climb and the bubblier the surge, the more painful the fall.

#3: The insane stock market became the less speculative place to invest

Of course, the weirdest and most interesting of all the weird-and-interesting market stories of 2021 didn’t involve stocks at all but crypto. First: NFTs — collectible JPEG art, bought and sold over the blockchain — went mainstream, and became the focus of intense speculation and froth. Or, depending on your perspective, they became signals of our exciting new decentralized future. Either way, Paris Hilton chatted about NFTs on “The Tonight Show With Jimmy Fallon,” and Snoop Dog (or someone close to him) bought one by the artist XCOPY for $3.9 million USD. Around this time, “Right Click, Save As” entered the lexicon, as a way to mock ride-or-die NFT true believers, making clear that their speculative investments in ape cartoons or pixilated punks could become just as worthless as any other JPEG downloaded from the internet.

All the major cryptocurrencies, meanwhile, saw Looney Toon-style eye-popping price gains, with Ether up some 444% year-to-date and Bitcoin up 65% — to say nothing of the 16,000% to 17,000% (or higher) rises of some lesser-known tokens. Cryptocurrencies rose so much, in fact, that top Wall Street traders felt eclipsed by blockchain nerds and fintech founders. (Those poor, poor rich guys can’t catch a break!) And, as cryptocurrencies gained value, serious financial and political people started taking digital currencies much more seriously, or at least marginally more seriously. Canadian regulators OK’d the first bitcoin ETF. The U.S. Congress held a hearing with cryptocurrency executives. And El Salvador adopted Bitcoin as legal tender. Yet, for all of crypto’s newfound quasi-respectability, the world of crypto was still lousy with scams and theft in 2021, with an estimated $7.7 billion in crypto stolen. And what should we make of the fact that Shiba Inu — which is not only a so-called “meme coin” but a meme coin that is a rip-off of an existing meme coin, Doge — became a hot new investment? Maybe not a great look.

#4: Inflation trumps everything

And yet somehow crypto, despite all its records and all its firsts and all its Brave New Worldness, ultimately didn’t become the defining money story of 2021. What did was a very old subject of perennial concern: inflation. It’s hard to pinpoint on a timeline when, exactly, we realized — or even if there was a discrete turning point — that price spikes and supply-chain mayhem had become the financial world’s chief concern, or when we stopped believing that the price surges were not, in fact, “transitionary,” as Jerome Powell, the U.S. Federal Reserve chair, often repeated, until he finally ditched the term in November. At any rate, we all know the story by now: people had money to spend, demand for consumer goods outstripped supply, cargo ships got bottlenecked at ports, and the price of everything steadily rose. As of this month, inflation is up 4.7% in Canada and 6.8% in the U.S. Google nearly any product and then add the word “shortage,” and you’re more than likely to find a relevant news report.

The big question heading into 2022 is for how long, and how much, inflation will continue to climb: a report out this month forecasts that food prices in Canada will surge between 5% and 7% in 2022, the biggest jump in more than a decade. The Bank of Canada is tightening its monetary policy to cool off the economy and slow price gains. Because if prices don’t drop soon, employees may start demanding higher pay to keep up with rising prices, which threatens to perpetuate the cycle of price increases. That the omicron variant is spreading like wild and renewed COVID restrictions are taking effect could further bungle supply-chain issues and exacerbate inflation woes.

2022: Our decentralized future

Almost any remnant of optimism that people shared in January 2021 has almost certainly melted away — no one is saying we’re going to have the “best summer ever,” like folks were a year ago — and it’s easy to get freaked out by the All The Big Economic Uncertainties of frothy markets and high inflation. It could be worse: unemployment is low, the economy is generally strong, Canada has one of the highest vaccination rates in the world. Still, we have entered a new era in which much of what we thought we knew about money is no longer true: that retail traders won’t want to invest in failing companies like Gamestop, that governments would never accept cryptocurrencies, that digital art would never catch on. Capitalism has upturned these assumptions and is working in a way that our ye olde investment ancestors could never have dreamed of, much less have imagined coming to life — the true democratization of capital, the birth of a world where people can sit in the bathtub and fund whatever DAO or startup or blockchain project they deem worthwhile, without these projects or entities having to list on the stock market or meet with venture capitalists or any of that song and dance.

To be sure, this trend of democratized, and decentralized, finance didn’t appear out of nowhere — Bitcoin has been around for more than a decade. But the pandemic — or, more precisely, the huge influx of government stimulus in response to it — brought these trends to the fore more quickly than they would have otherwise. Which is exciting. But also a little, well, weird at times, even for those of us who believe that blockchain is the future. It’s weird that 20-year-olds, through a combination of dumb luck and fortuitous happenstance, can become multimillionaires thanks to crypto. And it’s weird that DAOs that have done basically nothing somehow have million-dollar valuations already.

We don’t know what 2022 holds. But maybe some of the weirdness will start to make a little sense. The concern is that clarity might come with economic pain.

Written By

Ethan Lou

Ethan Lou’s latest book is Once a Bitcoin Miner: Scandal and Turmoil in the Cryptocurrency Wild West.

Ethan Lou