Why WallStreetBets and Bitcoiners Got So Excited About GameStop
How perfect is it that GameStop of all things is what is revealing the cracks in our capital markets to the masses? Many of us found ourselves fielding confused communiqués from loved ones about just why everyone was talking about the memeable video game rental chain last week. Apparently, it was about to bring down our financial system?
The truth is not quite as immediately apocalyptic as the many talking head “suits” on financial TV might have conveyed, but there is no denying that the “GameStonk” episode bares real flaws on Wall Street. It’s no surprise that two groups most interested in overcoming or exploiting these weaknesses—the Bitcoin and r/WallStreetBets communities—rallied around this incident-turned-movement. Regardless of how the GameStonk saga eventually plays out, the problems it exposed need addressing, and technology may already be providing the solutions.
Most people get what Bitcoin is about by now. It’s inflation- and censorship-resistant private digital cash. People like it because it provides an escape from both monetary manipulation that enriches the few at the expense of everyone else and financial deplatforming by intermediaries. It’s a technological exit from a financial system mostly oriented to the benefit of the connected.
WallStreetBets (WSB) is a more obscure beast. It’s a Reddit community centered around picking stocks on apps like the video game-like Robinhood. They describe it as “if 4chan got ahold of a Bloomberg terminal.” They’re novice investors, younger, and obviously have much skimpier pockets than professional hedge fund and institutional wealth managers.
But they’re not idiots (well, most of them aren’t, at least). Actually, there’s a good number of professional traders that lurk and post on WSB—the infamous Martin Shkreli being one former (and level-headed) moderator.
And GameStop was not picked because it was funny. Users noticed that the stock price didn’t reflect GameStop’s otherwise decent financial position. Not only was the stock being shorted, which means that big investors were making bets that the price would go down, it looked like more stocks were being traded than even existed. This would not just be nonsensical, such apparent “naked short selling” is supposed to be illegal.
The interest surrounding GameStop actually started way back in 2019, when a user (who was later revealed to be a young professional trader) noticed some irregularities with GameStop trading. Heterodox investors like The Big Short’s Michael Burry noticed the opportunity for what’s called a “short squeeze“; slowly other posters started understanding the strategy and bought up shares, causing the price to inch up.
Hedge funds had a lot of money on the line betting that GameStop stock would fall. With some assists from a few puckish billionaires, WSB bought up the stock to keep the price high—absurdly high, actually: the stock that had coasted for around a few bucks peaked at almost $500 in late January—which would ruin the hedge funds’ positions. This is the squeeze.
Although their tongue-in-cheek rallying cry was that they “liked the stock,” of course WSB knew GameStop stock was not worth more than, say, Mastercard (~$340). And most of them knew they would probably lose money once the price eventually fell. Like Bitcoiners insist on “hodling” through bear markets, WSB posters encouraged each other to maintain their “diamond hands” and hold the stock no matter what. This was about sending a message.
Article from Latest – Reason.com