The last few days have been an impressive fight between the internet and Wall Street itself. American video game retailer GameStop is the star of this unexpected war.
The retailer’s declining stock market value was on track for a recovery in the second half of 2020, with a new partnership with Microsoft, next-generation console launches and the promise of financial gain during the holiday season. Then, seemingly suddenly, the company’s share price jumped from under $ 20 to $ 347.
Well, if you say why, we can say Reddit. This huge leap was heavily challenged by online communities such as the WallStreetBets subreddit. A tweet from Citron Research on Jan.19 warned that GameStop share prices will quickly return to $ 20, and higher buyers are suckers. Citron is a GameStop short seller (or rather it was) which meant he wanted the price to drop. The higher it was, the more the firm would lose. Realizing this, WallStreetBets decided to work together and increase the price.
Reddit also acquired Hedge fund Melvin Capital Management, one of the biggest corporate shorteners of GameStop shares. While Reddit isn’t the only factor behind GameStop’s surge, it played an important role.
This entire GameStop saga had a huge impact on the stock market, such that Melvin Capital Management needed nearly $ 3 billion in investment to survive after GameStop first started leaping upwards.
CEO Gabe Plotkin told CNBC that the news that the company was approaching bankruptcy was false, but Melvin pulled out of GameStop and left Reddit to him after suffering a massive loss Tuesday afternoon.
The implications of what this means for the American stock market have yet to be seen. While some praise Reddit for proving beyond all doubt that the exchange is a strange and complex mess that is often held together by willpower, others are concerned about the precedent set by the GameStop situation.
Social Capital CEO Chamath Palihapitiya praised WallStreetBets to CNBC as a driving force against the organization, arguing that those involved do a better and obviously better job than many hedge fund analysts. He also pointed out that many of the initial risk-takers were outraged by the way the stock exchange was run and was run by a few.
It’s important to remember that what Reddit is doing right now is by no means illegal, but some now urge regulators to think about how advances in technology can be used to share information on the market and how this might affect things.
White House press secretary Jen Psaki recently confirmed that the US government is monitoring the situation.