What happens when you gather 7.8 million reddit “degenerates” together? Apparently, the nightmare of a Wall Street hedge fund.
Gamestock ($GME) has skyrocketed recently, up 1,600% in 2021, with shares currently valued at $325 before the market opens on Monday, February 1. This explosion started on the subreddit r/WallStreetBets (WSB), with nearly 8 million members of amateur retail investors who jokingly refer to each other as “degenerates” and “apes.”
Reddit user r/DeepF-ckingValue, whose real name is Keith Gill, first invested $54,000 in Gamestop back in 2019. Many thought his investment was a fool’s errand. After all, Gamestop’s brick-and-mortar stores were going out of business as the gaming industry rapidly transitioned to online sales. Gill, however, saw potential in Gamestop’s future as it hunted for a new chief executive and as future consoles were on the verge of being released. Despite that potential, Gamestop’s stock prices continued to gradually decline.
That investment turned out to be a genius maneuver, however, when members of WSB noticed that GameStop was being heavily shorted in late 2020. Big hedge funds, specifically Melvin Capital, and their investors saw the company’s falling stock prices, and investors borrowed the stock intending to quickly sell them, wait for the price to drop, and buy them back at a much cheaper price. This is a common practice known as shorting, essentially betting against a stock.
Unfortunately for Wall Street, Reddit had other plans.
The members of WSB bought up as much $GME as they could, driving up the value to insane levels and causing a massive short squeeze. Hedge funds have had to borrow billions to cover the losses from GameStop, as well as AMC, another shorted stock that had fallen precipitously due to the coronavirus pandemic. The events have spread like wildfire, quickly spilling over onto Twitter, TikTok, and other popular platforms as more and more of the general public invested, continuing to drive up the price.
As for the amateur investors of Reddit, some have watched millions pour into their bank accounts virtually overnight. (Users refer to their gains as “tendies.”) One user claims to have used his profits to pay off his mother’s medical bills, while another says that they managed to afford a life-saving surgery for their sick dog. These stories of the little guys, sticking it to the “elites” with their million-dollar homes, only serves to fuel the public’s drive towards investing in Gamestop. Throughout it all, the redditors remind each other to have “diamond hands” and hold, never sell, even as the stock proves to be extremely volatile.
But the hedge funds won’t go down without a fight. Disinformation campaigns popped up immediately, with fake “bot” reddit accounts spamming calls to sell and other claims that WSB users say to be false. CNBC reported that Melvin Capital had closed out on its shorts, a story that WSB instantly pointed out was untrue. Robinhood, an app that allows practically anyone to invest in the stock market, ironically halted trading of $GME, $AMC, and other shorted stocks. This was viewed as a despicable move to protect the rapidly spiraling hedge funds and generated fierce criticism from the likes of Alexandria Ocasio-Cortez and Ted Cruz. Now, the media is reporting that WSB redditors have turned away from Gamestop towards silver, despite no legitimate talk whatsoever in the subreddit to back up that claim. It’s become a classic David vs. Goliath situation, and many are rooting for David.
The future of Gamestop is still up in the air. Stock prices have already plummeted, losing a third of their value after a 400% increase in the price of shares last week, and many analysts say they doubt there will be sustained profits following this unprecedented surge, although WSB fiercely disagrees.
Whether Gamestop retains its newfound place among the most lucrative of companies serves as an example of the disdain people have towards the established financial monster that is Wall Street and the power the average investors can wield when banded together through the internet.