GameStop Controversy: Why Hedge Funds are Crying and Millennials are Celebrating
How a group of Reddit bros outsmarted Wall Street.
GameStop shook up Wall Street and we’re here for it.
Once upon a time, GameStop was a shopping mall cornerstone, offering shelves of newly released video games and a trade-in policy revered by its customers of gaming fanatics. However, over the past few years, with the dawn of digital games and move away from brick-and-mortar stores, the video game retailer has been shuttering countless locations nationwide. Quite frankly, GameStop hasn’t been making front-page news since the early 2000s…that is, until last week.
The struggling video game outlet has been making headlines this week for a trading tug of war coordinated by a Reddit community on the subreddit, r/wallstreetbets to target greedy hedge fund managers who, up until now, made all the rules. It’s a classic tale of David and Goliath and we can’t help but root for the underdog. Gamestop’s slogan, “Power to the Players”, fuses perfectly with the ethos of this grassroots movement to disrupt the power dynamics of the stock market, transitioning the power – if just for a short while – back to the little guy, the 99%.
The GameStop frenzy has been orchestrated across two apps: Reddit and Robinhood, the latter being a mobile app trading platform and long-time favorite of r/wallstreetbets. Wall Street expected the share price to continue to fall and using “buy high, sell low” tactics, anticipated making a short profit. We’re not going to lie: GameStop had and has potential for a comeback. A new CEO, a 309% digital sales increase over the holiday season. It’s not a hopeless stock and Redditors recognized that.
The company hit its all time low stock price of a measly $2.80 in April 2020 and continued to flounder throughout this past year. As of NYSE open time today, the price is $381. Using a practice investors call a “short squeeze”, Reddit bros swarmed the Robinhood app and quickly purchased GameStop shares, driving up the price of the stock and causing the Wall Streeters sitting on GameStop stock and banking on its decrease in value, to lose lots of money. We’re talking tens of billions.
The Robinhood app even had to put a halt on the purchasing of GameStop stock (currently, users can only purchase 5 shares). Is that legal? Actually, probably not, and Redditors have already organized a class action lawsuit against stock restriction and a new subreddit to boot, r/ClassActionRobinHood.
But why is this so groundbreaking? Simply put, it shows the amount of change that can occur when the 99% band together against the 1%. Perhaps this is 2021’s answer to 2008’s Occupy Wall Street movement. Hedge fund managers are left crying “market manipulation”, a tactic they know very well and have been practicing for years. Millennial private investors have simply learnt the rules of the game and are giving them a run for their money, no pun intended.