Today, a war over the value of video game retailer GameStop’s stock has caused what market guru Jim Cramer called “the squeeze of a lifetime.” Howling with glee along the way, traders on the chaotic and obscene subreddit WallStreetBets helped push GameStop’s stock price up from $20 on January 11 to $73 after traditional analysts deemed the stock a clunker.
While this isn’t the first time WallStreetBets has contributed to a surprising market shake-up, GameStop’s unlikely trip to the moon is unique in both its velocity and the allegations of harassment and hacking that accompanied it.
- Like other physical retailers, GameStop’s business has suffered in the past year. Few gamers would rather hit the mall than Amazon’s significantly safer “Buy Now” button. But GameStop was in dire straits even before the pandemic struck. Its thousands of store locations couldn’t compete with the digital marketplaces offered by the game consoles and PC titans Steam and Epic Games. GameStop laid off dozens of regional managers in mid-2019 after a precipitous, years-long decline in its stock price. To remedy the situation, GameStop announced it would pivot to a social-hub model, like a modern LAN cafe. Then the pandemic hit.
As GameStop foundered, some analysts suggested short-selling the stock to profit off the price going down. Investors borrowed shares of GME and then sold them in the hope that, once they bought the stock back, they’d make money off the difference. But in August, pet food site Chewy.com founder Ryan Cohen purchased a large number of GameStop shares and began strongly advocating for the company to build out its ecommerce presence. Cohen ascended to its board of directors earlier this month, and as Ars Technica reported earlier this week, analysts and investors responded positively to the news. As the stock climbed, short sellers found themselves having to buy more stock to cover their borrowing. Within a couple of days, GameStop’s stock had doubled.
“It was a huge, massive short position,” says Corey Hoffstein, chief investment officer of quantitative investment and research firm Newfound Research. A significant amount of money was caught in what’s known as a “short squeeze,” which happens when investors who have bet against a rising stock have to buy it to cover their losses. When the price goes up, so does the loss risk for short sellers. They may then buy shares to cushion that risk because they theoretically face, as Hoffstein says, “ unlimited losses as the price goes up and up and up towards infinity.” The price skyrocketed.
So-called retail investors—individuals rather than institutions—began sniffing around, especially those orbiting the hugely popular subreddit WallStreetBets, which has 2 million members and describes itself as “like 4chan found a Bloomberg terminal.” As a collective, the subreddit has previously amassed enough bodies and enough funds to drive unlikely rallies in the stocks of companies like Lumber Liquidators and Plug Power. “It was a meme stock that really blew up,” said WallStreetBets moderator Bawse1. “The massive short contributed more toward the meme stock.” GameStop seemed so utterly doomed that the current situation was actually sort of funny to the subreddit’s denizens. Banded together, WallStreetBets members bought in big enough to move the stock.
Then came war. On Tuesday, Citron Research founder Andrew Left, an activist investor and short seller, tweeted that he’d share five reasons why GameStop’s stock would plummet to $20 fast in an upcoming livestream. (The stock had by then climbed to $41.) “We understand short interest better than you and will explain,” he wrote. In a YouTube video, Left argued that GameStop is “a failing, mall-based retailer,” and that its value is “not based on any fundamentals, [which] just shows the natural state of the market right now.”
On Friday, Left set up a second Citron Research Twitter handle, claiming that several people had attempted to hack the main account, potentially in an attempt to disrupt his livestream. In a note tweeted from that backup account, Left wrote that “an angry mob who owns this stock has spent the last 48 hours committing multiple crimes,” alleging that the same group harassed “minor children” as well. He says in his YouTube video that someone ordered pizzas to his house and signed him up for Tinder.
WallStreetBets moderator Bawse1 says that he doesn’t know if those things happened, “and if they did, it’s not something we condone or promoted.” At least two posts on the subreddit refer to an alleged doxxing. WIRED has not confirmed whether doxxing happened, or if it was through WallStreetBets channels. Left did not respond to WIRED’s request for comment. Twitter told WIRED it locked his account as a precaution.
Tensions between retail investors like WallStreetBets and a traditional short seller like Citron Research have threatened to boil over for some time, in part because of a core philosophical difference. “The traditional Wall Street view is that markets are driven by some tie to fundamental value,” said Hoffstein. “What we’re seeing is an influx of speculative retail traders who don’t have any philosophy about valuation.” He quotes a phrase from Bloomberg’s Tracy Alloway: “Flows before pros.” The market will be driven by a flow of capital rather than fundamentals—not a novel quandary considering 1999’s dotcom bubble. (Then, too, day traders would often pile into a stock on the rise, assuming it would always go up.)
“I think the subreddit brings a new factor into stocks that wasn’t as prevalent as before,” says Bawse1. “It’s called hype.”
Meanwhile, calls of “BUY” alongside emoji rocket ships flooded the WallStreetBets Discord Friday, where over 25,000 onlookers watched chat fill with diamonds, rocket emojis, and obscenities. GameStop’s stock had just hit $60, a great leap from the $20 it was worth just last week. On Friday, 194 million shares were traded, over 12 times its average trading volume. In the Discord’s voice channel, where hundreds participated in the “gme-rocket,” yelling, humming, and intermittent announcements coalesced into something like a Gregorian chant. The stock continued to rise. It peaked at $73.09 midday today before quickly falling to about $58. Discord members urged each other to “HOLD.” Bawse1 says that this is the first time in years on WallStreetBets that “everybody was making money.”
WallStreetBets treats stock trading like a video game, says Jaime Rogozinski, who founded the subreddit but has not been affiliated with it since last year. Buttons. Graphs. Risk and reward. Hell, a Discord. According to Bawse1, a lot of the trading takes place on the Robinhood app, which advertises, “Level up with options trading … Choose your own venture.” Now that the barrier to trading options is lower than ever, having leverage in the stock market can be as easy as having a couple hundred thousand buddies and an app.
“It certainly started as a meme. That’s how WallStreetBets operates,” Rogozinski says. “[WallStreetBets] get a stock, they have fun with it, they make funny pictures and videos and songs or whatever. GameStop started as a meme, but they pushed it to a different level. They’re no longer commenting on the story. They’re wanting to become the story and have very effectively done that.”
GameStop’s stock closed out at $65.01, up 51 percent since Thursday’s close. On the WallStreetBets subreddit, one of the most popular posts declares, “GME!!!” with rocket ship, moon, diamond, and prayer hands emojis. A screenshot of their Robinhood account showed they had $100,245.06 in the market; they were up 69.69 percent on the day. Read one comment: “THIS IS PROOF OF OUR STRATEGY. BUY SHARES. BLEED THE SHORTS. FUCK THE INSTITUTIONS. HOLD THE LINE.”
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