It has been a WILD week for the market, as the most unlikely battle of all time has played out in Wall Street. GameStop, whose presence on the stock market was the equivalent of being forced to invite your cousin to your birthday party, saw its stock price soar thanks to the activities of Reddit trading community r/wallstreetbets.
It has been an unprecedented move by the forum, earning it mainstream attention and highlighting just how broken the American financial system is, to the point where the US government is actively monitoring the situation. It also seems to be an imperceptible scenario to monitor, leading many to wonder: Just what the hell is going on? Here’s an insultingly brief breakdown on the entire brouhaha in which reddit investors fueled by the chance to make a quick buck and shitpost about their experience, have pissed off Wall Street investors who do the exact same thing but on an obscene level.
August 2020 – GameStop gets a new dad
Chewy founder Ryan Cohen rocks up on the Wall Street scene, takes a look at GameStop’s average stock price of around $10 and says “I’ll have some of that”. Cohen had plans for the company, big plans, and firmly believed he could turn the struggling brand around in an industry where digital distribution of video games was slowly gaining more ground every year.
Cohen’s rise towards becoming the GameStop’s largest private investor resulted in him noticing that the company’s stock was one of the most shorted around, which in a nutshell revolves around the idea that company stock is borrowed by investors when they think it’s going to decrease in value. That stock is then bought back at a lower price, with the difference being kept as profit. With Cohen in charge, much shorting was the order of the day.
Think of it this way: If I borrow a million shares and sell each one for $10, I make $10 million. The price of that share might be worth $5, so I pay $5 million back and pocket the rest. If the price of that share rises to $11, I’m out of pocket by a cool million because I owe the company $11 million. Simple, right?
What could possibly go wrong?
Something goes wrong
Enter Wallstreetbets. A trading and investing subreddit, ya boys on the forum had noticed for a while now that something was not right on Wall Street. After all, how could hedge fund bastards (great write-up here on why they’re a greedy waste of blood and oxygen on two legs) borrow more shares than were actually available?
Someone on the Reddit noticed that hedge fund investors had shorted 140% of all shares available from GameStop, and word began spreading around the gang. What if…what if they all banded together, to grab the hedge funds and put a short squeeze on them? Even if the shares borrowed didn’t exist, the overlords of American commerce had long since decreed that ALL borrowed stock had to be paid back. Hedge fund investors, full of greed, piss, and arrogance, thought that they were untouchable.
Wallstreetbets decided to teach them a lesson, resulting in one of the most glorious clapbacks of all time to the 1%.
The buying frenzy begins
Wallstreetbets members then started buying as much GameStop stock as they could get their hands on, which result in the value of those stocks being driven up. It’s worth pointing out that these were all just average people, earning average salaries, taking part in this. That feeding frenzy then had a knock-on effect, as the value of the stock soared to record levels, forcing the hedge fund investors to buy back their investment at a crazy price. According to estimates, investors who went for short stocks were slapped with a loss of $137.98 million.
Hedge funds had been dealt a huge blow, and the due date to pay back on the stock that they had borrowed was fast approaching. These investors, who had gamed a system for so long, had been taken completely unaware by Wallstreetbets, trapped like film director Kevin Smth’s portly ass in a storm drain while on the run from federal law enforcement.
Investors only had two options in front of them: Take the loss on the chin, or do something incredibly stupid. Naturally, only one of those options was chosen.
They did something incredibly stupid
Thinking that they were playing a game of chicken with Wallstreetbets, hedge fund investors doubled down and borrowed more stock, thinking that they could cause a crash in the stock price and save their greasy skins. Early results looked promising, but the bankers had no idea who they were dealing with as Wallstreetbets struck back with coordinated efforts to stay in the game.
No matter what dirty trick investors could pull from their filthy sleeves, Wallstreetbets had an answer. With mainstream media attention also beginning to increase in frequency, these hedge fund investors found themselves in an impossible situation as karma came back to bite them. Meanwhile, Wallstreetbets was reveling in the attention, which showed just how corrupt the entire American stock market really was.
“What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living,” a message by the subreddit’s moderators reads.
Big names began to get involved as well. Elon Musk, managed to send the share price into the stratosphere with a single tweet. Presumably with a smile on his face, considering how hedge funds in the past had attempted to kill Tesla with short squeezes. Other billionaires decided to join in on the fun, not caring if they made a loss as the entire effort boiled down to wanting to see hedge funds being burnt alive in their own hubris. Overall, it was good time had by all.
It just keeps going up
At the time of writing, GameStop’s stock currently sits at $193 per share, which isn’t too bad for anyone who bought in back when it was valued at $4 a pop. Hedge funds are still trying to short GameStop, and they’ve gone onto major news channels in an effort to shift blame while angrily yelling about being beaten at their own game. Wallstreetbets has succeeded at shining a light on the unrelenting greed of the financial system, although the end result has been a mix of a genuine push to overhaul the corruption inherent in Wall Street and well-connected businessmen stepping in to save their saggy skins.
On January 28, stock-trading app Robin Hood halted trade on companies such as GameStop and AMC. This was done “in light of recent volatality,” according to Robinhood, but other platforms such as Webull, M1 and Public removed those restrictions a few hours later restrictions that afternoon. The entire brouhaha is far from over, with some analysts predicting that GameStop’s stock could be worth thousands before it dips once again.
US congressperson and occasional Among Us streamer Alexandria Ocasio-Cortez has thrown her hat into the ring, saying that she would support a hearing to look into the whole sordid affair. ACO criticized the recent “decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
When will it end?
Who knows? A paradigm shift is unfolding right now on Wall Street, and the tears from bitter hedge funds are delicious. Comeuppance has long been overdue, sales of incredibly tiny violins are up, and when the dust has settled you can expect hedge funds to have lost a billions in dollars in the process. If you’re interested in reading more on amazing financial spectacle, check out this brilliant timeline.
Last Updated: January 29, 2021