The Central Bank of Taiwan’s official social media account recently posted a tweet stating that there has been a peculiar phenomenon in the US stock market, where many once-hot start-up companies have seen their stock prices drop below $1, earning them the nickname “penny stocks”. This phenomenon has sparked deep concerns among investors about market trends. The central bank’s social media account, which has always enjoyed mocking the cryptocurrency trend, has once again attracted the attention of the cryptocurrency community.
Contents:
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From Stardom to “Penny Stocks”
The Stock Price Crisis and Regulations of Nasdaq
Historical Regulations of Nasdaq and Market Crashes
Consequences of the SPAC Craze
Reverse Stock Split Strategy
“Penny Stocks” Phenomenon Worldwide
New Regulations and Investor Warnings by Taiwan Stock Exchange
Are Cryptocurrencies Also Considered “Penny Stocks”?
What Happens When the Cryptocurrency Market Crashes? Embracing the Meme Cycle
The Central Bank of Taiwan stated that the stocks of US start-up companies were once sought after by investors. However, the fortunes of these companies have taken a sharp turn, with many stock prices falling below $1, becoming so-called “penny stocks”. According to Dow Jones market data, as of December 2023, as many as 557 stocks were priced below $1.
Among them, 464 stocks are listed on the Nasdaq stock exchange. Nasdaq requires that stock prices be maintained at $1 or above, otherwise companies may face the threat of delisting. Therefore, companies with stock prices below $1 are given up to one year to restore their stock prices.
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Since the 1990s, Nasdaq has consistently required listed companies to have stock prices of at least $1, but this requirement has been temporarily suspended during stock market crashes such as in 2001, 2008, and 2020. In comparison, the New York Stock Exchange has similar rules, but due to stricter listing requirements, there are fewer stocks priced below $1.
Many companies with stock prices below $1 were listed between 2020 and 2021. During this period, initial public offerings (IPOs) and mergers with special purpose acquisition companies (SPACs) were highly active. However, with regulatory agencies tightening regulations in 2021, the SPAC frenzy gradually subsided, leaving behind a group of financially weak entities.
To combat this downward trend, companies like AEye are resorting to reverse stock splits, a controversial strategy that is usually seen as a last resort to meet the minimum price requirement. This strategy has seen a significant increase in 2023, as companies strive to counter their declining fortunes.
The Central Bank of Taiwan stated that similar phenomena can also be observed in the Hong Kong and Taiwan markets, where stocks with extremely low prices are referred to as “penny stocks” and “dumpling stocks”. These stocks attract some investors due to their low prices but are also often seen as higher-risk investment targets.
The Central Bank of Taiwan stated that since April 2020, the Taiwan Stock Exchange has implemented new delisting mechanisms. If listed companies fail to resolve their operational issues, they may be forced to delist. This new regulation aims to remind investors of the risks associated with “penny stocks” and “dumpling stocks”.
Investors should carefully consider the risks of investing in these low-priced stocks. In the vast stock market, “penny stocks” may conceal unknown risks, requiring more wisdom and caution to navigate. Remember, investment is not just about finding low-priced stocks but also about a deep understanding of company value and market trends.
Due to the many similarities between “penny stocks” and cryptocurrencies, there are cryptocurrency communities that believe the central bank’s intention is to mock them.
The relationship between “penny stocks” and cryptocurrencies can be seen in several aspects:
High Risk, High Return: Both “penny stocks” and cryptocurrencies are high-risk investments. Their prices fluctuate greatly, which can lead to high returns or high losses.
Speculative Nature: Both investment instruments often attract investors seeking quick profits because they have the potential for large price fluctuations in a short period of time.
Technology-Driven: The cryptocurrency market relies heavily on technology, especially blockchain technology. Although “penny stocks” are not necessarily technology-driven, stocks of companies involved in high-tech or innovative fields often have low prices.
Investor Base: Both markets attract a large number of retail investors, especially those dissatisfied with traditional markets such as large-cap stocks or bonds.
In fact, after the popularity of cryptocurrency fundraising, many startups joined the market due to loose regulations and low transparency, incorporating blockchain elements and creating a new generation of “penny stock” markets.
However, due to the low-regulation nature of the cryptocurrency market, many currencies that have once hit rock bottom not only avoid being delisted but also frequently experience meme-driven rebounds. As long as there is a story, it can attract many speculative investors. This may be one of the major differences from the traditional financial market.