There’s only one story right now worth talking about, and it’s Gamestop. If you’ve somehow missed the 20 billion news stories attempting to explain what’s happening, a bunch of hedge funds made massive bets against Gamestop’s Stock, and Reddit responded by calling their bluff and spending obscene amounts of money driving up the share price by buying at increasingly inflated prices. And how did this happen? Reddit, of course, and the famous/infamous r/WallStreetBets subreddit.
If that sounds familiar, it’s probably because they were referenced in a bunch of news stories a while back after discovering the Robinhood trading app’s infinite money glitch that allowed them to make insanely risky bets with borrowed money. I’m not personally a member of this subreddit—I get bored with Reddit and other places like it easily whenever I can participate—but I’ve checked it out a few times over the past year, and while I’m no expert, a pretty clear line can be drawn between WSB-then and WSB-now. Back then, the main draw was people posting “loss porn,” or examples of times where they’ve lost absurd, life-destroying amounts of money. This wasn’t a place people went to for sane advice about investing.
Several months ago, one of its members called u/deepfuckingvalue (who has since been named in the press and received plenty of coverage) argued in favor of Gamestop as a long-term investment and was laughed at. Then some people began to buy in and the stock’s price rose. This continued until it became apparent that the increasing price could potentially catch short-sellers between a rock and a hard place, forcing them to buy shares at vastly inflated prices. What began as a guy liking a stock suddenly had the potential to turn into a financial war-by-proxy pitting the poor against the rich.
That’s where I joined in, personally. I’m not a financial genius by any stretch of the imagination, but I followed smart-money advice in avoiding Tesla stock when the company was in a tight spot, as well as Carnival stock when the coronavirus began to become a real problem, and you know what? Both ended up shooting up. The lesson I learned from the former: never bet against those who treat investing in something as a statement. People invested in Tesla because they believed in Elon Musk, not because its stock price deserved to be higher than every other car maker combined (crazy). The same goes for Bitcoin; people initially bought in because the idea of a decentralized currency was appealing to them, not because it had intrinsic value. It was only once the price skyrocketed that everyone else hopped on the bandwagon and drove up the price even more.
Gamestop’s stock saw a similar bandwagon effect, with the WSB subreddit seeing an influx of millions of people as many news stories reported on the share price jump with amused detachment. At one point, this feedback loop became so powerful that the stock jumped up to over 500 dollars/share:
This was after hours, so normal investors weren’t able to sell at this point, which was disappointing given what happened next:
A mysterious near-halving of the price. Is that unexpected given how overvalued Gamestop’s shares were/are? Not at all, but the fact that this happened pre-market has led many to suggest that the hedge funds who were short-selling the stock had done something called a “short ladder attack.” Again, I’m not an expert, so there may be a more innocent explanation, but what happened when the market opened to everyone certainly made it seem like those who had money were stacking the deck against those who were driving up Gamestop’s share price:
Basically, Robinhood (and many other trading platforms) restricted everyone’s ability to buy shares of this particular stock, as well as several others like AMC and Blackberry that were showing signs of volatility. However, they didn’t restrict anyone’s ability to sell, which meant that the stock price could really only go down. This led to some bizarreness where Congresswoman Alexandria Ocasio-Cortez and Ted Cruz both agreed on the need to look into these conveniently-timed restrictions. I could include that tweet, but doing so would require embedding a Ted Cruz tweet, so have this one instead:
Robinhood and several other trading platforms then opened up trading, but only allowed a limited number of additional purchases. I had intended to sit on my single share as a form of protest, personally, but ended up selling most of the stocks I owned to buy another share of Gamestop, which maxed me out at my then-current (and possibly still-current) maximum of 2.
At some point, more than half of all Robinhood users owned stock in Gamestop, which was likely made possible thanks to the ability to buy “fractional shares,” which allow you buy a stock in dollars rather than shares. This made it possible to own 0.258925 (or whatever other random, non-whole number you want to invent) Gamestop shares if you weren’t able to afford a whole share. Once trading opened back up, though, users were disallowed from buying fractional shares in “volatile” stocks.
The Robinhood app on the Google Play store was subsequently destroyed by so many 1-star reviews that its average dropped down to 1 star out of 5. It jumped back up to 4-something after Google deleted 100,000 negative user reviews, however, though many users went back and rewrote their negative reviews. Robinhood’s rating currently sits at a dismal 2.2 stars out of 5.
Robinhood has since offered up a complicated explanation invoking regulations and their legal obligations as reasons for why they restricted trading, and it may technically be correct, but they’re literally admitting that they couldn’t allow the price of shares to increase any higher, and this reading of their explanation is buoyed by the fact that they disabled the buying of fractional Gamestop shares when they opened, freezing out the everyday investors whose enthusiasm was driving the rally.
It’s possible that I’ve taken a step too far into conspiratorial waters and not afforded Robinhood the presumption of innocence on this one, and I fully recognize that. There’s a whole lot of smoke circling this situation, though; Robinhood earns money by delivering data to a company called Citadel (which is one of the ways it earns money despite being a free platform), and Citadel recently helped to pump 2.75 billion dollars into Melvin Capital Management, one of the hedge funds that were short-selling Gamestop. Melvin Capital has since been rumored to have closed their short positions on the company, but WSB users are critical, pointing out how weird it is that everyone seems to be saying that the big hedge funds are out of the game. Especially after Friday, when most stocks fell, allegedly due in part to short-sellers pulling money out of other stocks to cover their Gamestop losses. Either these companies have the worst PR machine in existence or there are rich-people shenanigans going on behind the scenes. Neither possibility reflects well on a group of “sophisticated traders” that rich people trust with Scrooge McDuck amounts of money.
This is the story as we wait for the market to open on Monday—Gamestop’s stock remained at 312 dollars thanks to WSB’s stubborn refusal to sell their shares. Some of them are holding out in hope of greater profits, thinking that the momentum can continue enough to force short-sellers’ hands (and recognizing that investors can hold stocks at no price beyond what they win/lose from the price changing; short-sellers have to pay interest and lose money in realtime in addition to their wins and losses). Others may sell immediately, anticipating a crash.
Still others have turned the situation from a moneymaking opportunity into a kamikaze mission, offering their money to the system with no expectation of a return beyond the ruination of rich people on Wall Street (or people who are rich enough to be Wall Street-adjacent). “Diamond hands” is repeated almost like a religious mantra, often repeated in emoji form, as these groups of people of all political affiliations join together and announce their reasons for becoming involved with Gamestop.
Some people have vet bills, medical bills, or student debt that they’d struggle to pay otherwise (and I sincerely hope that these people bought in early and are the first ones to cash out). Others recount horror stories from 2008’s market crash or the blistering rage that formed when the Occupy Wall Street movement failed to shame wealthy Wall Street types into better behavior. Some are meme warriors. Some are opportunists. Many are determined to use their earnings for philanthropic causes rather than hoarding or reinvesting it as the hedge funds do. Some have allegedly spent money purchasing billboard ads over the weekend advertising Gamestop’s stock with diamond and hand emojis, as well as WSB’s obligatory rocket ships to signify a belief that the stock price is headed “to the moon.”
It’s currently 1:40 AM on Sunday morning, and Saturday was filled with breathless, weirdly similar stories about how the short sellers are the heroes of this story. Sunday is likely to see many more, though I’m also anticipating certain outlets arguing that the volatility threatens the market as a whole, suggesting (or at least implying) that foreign nations are using it to destabilize the markets. Meanwhile, those who are pro-Reddit range in ideology from Jon Stewart—who joined Twitter to criticize those throwing Redditors under the bus—to Tucker Carlson, and the anti-Reddit side is similarly comprised of those from across the political spectrum. Bizarrely, Gamestop has united people who were calling each other white supremacists and election-stealers as recently as a week ago in a common cause, even despite their varying reasons for getting involved.
Another positive is that conversations about Gamestop’s actual value are beginning, which means also having a talk about the place of physical games in an increasingly digital market. Physical games have value and will never disappear, or at least they never should. A bunch of speedruns include tricks only possible on outdated launch versions, and digital games always install the most recent version. Some people simply don’t have the internet to keep up with increasingly large file sizes, too. And best of all, you can sell physical games (though ideally not to Gamestop, hilariously enough, thanks to their proclivity for undervaluing trade-ins—something many WSB posters have jokingly claimed to be training for holding on to their shares rather than selling them), and this ensures that used physical games are almost always cheaper than their digital equivalents.
As for Gamestop’s stock? Who knows. Maybe it’ll stay inflated forever purely out of spite, a type of digital monolith that remains endlessly to honor the memory of when normal people were able to draw blood from finance-types. Maybe the news stories promising that everyone is about to lose all of their money (we know) will scare off enough people that there’ll be a massive sell-off the second the market opens. Either way, this is the most fun I’ve ever had with Gamestop, and wiping 20 billion off the map was less expensive than I expected it to be.
[I don’t know what the disclosure rules are, specifically, but I’ve seen people disclosing various things when talking about stocks, so I’m going to disclose that I have no idea what I’m talking about and am not advocating for anything. I own two shares of Gamestop, three dogs, and ten pints of hedge fund bro blood. I don’t like long walks on the beach and don’t understand why anyone would. I get frustrated when my attempts to mind-control people don’t work. I own a shocking number of video game-themed socks despite never buying video game-themed socks. Once, I was so tired that I forgot how to pronounce the word “who.” I also don’t think Mario games are all that special.]
Gamestop (GME), class warfare, and strange bedfellows first appeared on Killa Penguin
