Latest update on 5th February. This story is still ongoing. Expect updates in the next few days. Or weeks.
The past few days this week has been a while ride for GameStop, a then-renowned video game offline store chain that has little relevance in an age dominated by digital distribution services, at least in developed countries.
See, their stock price has been dwindling at US$10 since mid-2019, so it’s a little strange to see it skyrocket to nearly US$120 per share this week on the 27th of January (our time).
It’s not like GameStop has done anything insanely groundbreaking to pull itself out of a fate similar to Speedy Video; all signs of this share rise points to a Reddit thread called Wallstreetbets. We’ll break it down in days since this story is still developing.
See, this all started going into motion back in 2020 (via Wired). Let’s break it down:
- Since GameStop is at dire straits, this led some investors in the company to “short” the stock.
- This means investors win big if the price of a stock decreases. This is a viable “last-ditch” tactic where investors borrow shares of a company, then sells them. They get money, it’s not their shares, and they eventually have to return them. When that happens, they will have to buy back the shares they borrowed, ideally at a much lower price than they sold them so they get more money out of the difference.
- The risk? Well if say the price goes up unexpectedly. The folks who did the short-selling will lose the money since the reason they did all this is to get a huge profit out of a dying company that’s tanking.
- Since GameStop’s shares have been going up from US$10 to US$120 in a short span of time, this means someone has been planning to screw over said short-sellers.
But we’re getting ahead of ourselves here. GameStop’s share price has been seeing signs of life since Chewy co-founder Ryan Cohen bought a huge stake in the company back in October 2020. They planned to shake things up with the help of Xbox All Access program, with GameStop lending its back-end and retail operations tech to help the program. Its holiday 2020 sales also saw them go up 3.1 percent, with its e-commerce side of things rising by 309 percent. At this point in time on 19th January 2021, short-seller Citron Research posted this in lieu of this GameStop uptick:
“Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain.”
Tomorrow am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet
— Citron Research (@CitronResearch) January 19, 2021
And true enough, Reddit’s WallStreetBets got involved. Basically the daytraders here decided to mess with Citron Research and similar short-sellers to make a quick buck. GameStop’s share prices went up so rapidly due to a large number of people buying a limited number of shares in the company, in hopes to get in on the hot stock and short-sellers needing to cover loans for their master plan. The “Reddit” effect via WallStreetBets drove trade volumes moreso than usual.
This deliberate act of trolling has nothing to do with propping up an ailing company out of a “bizarre sense of nostalgia”, as clarified by the thread.
“They aren’t interested in GameStop as a company. It could quite literally have been ANY company.”
Sure. Why not. pic.twitter.com/FXlrFsxbnp
— Mat Piscatella (@MatPiscatella) January 25, 2021
In fact, this act of trolling is causing so much headache for “serious” investors willing to profit off the short-stock. Citron Research’s Andrew Left even was trolled having pizzas delivered to his house and signing him up for Tinder, as well as being subjected in things in an attempt to hack his Twitter account.
“Too many people hacking Citron Twitter. Will record and post later today. $GME going to $20 buy at your own risk.
Too many people hacking Citron twitter, will record and post later today. $GME going to $20 buy at your own risk
— Citron Research (@CitronResearch) January 21, 2021
26th January: This Escalated Quickly
GameStop shares are now at a new high of US$148. Also, the price shot past US$230 after-hour trading. This is due to Tesla guy Elon Mask sharing the WallStreetBets subreddit link on his Twitter with this insightful tweet:
— Elon Musk (@elonmusk) January 26, 2021
The man has deep pockets, so it’s no surprise he would be one of the many high-profile folks to jump onto this. Other folks include Virgin Galactic chairman Chamath Palihapitaya are also holding shares in GME.
Lots of $GME talk soooooo….
We bought Feb $115 calls on $GME this morning.
— Chamath Palihapitiya (@chamath) January 26, 2021
Meanwhile, the short-sellers are possibly in deep. The estimated losses for this tactic have now hit US$5 billion (via Business Insider). Wall Street Journal reported that Melvin Capital management required a US$2.75 billion investment to stabilize the company because they’re one of the short-sellers for the GameStop deal.
In case you still need a good explanation of the fiasco, here’s a breakdown from Tashi Tsenkyap on Twitter.
$GME Short squeeze explained nicely:
Snake – Melvin Capital & Citron
Apes – Retail Investors
Credit @ the group pic.twitter.com/0vyyg9lsnJ
— Tashi Tsenkyap (@tashitsenkyap) January 26, 2021
At this point in time, GameStop shares are now US$350 per share.
A popular message on WallStreetBets stated that the whole GameStop ordeal was done out of spite against old-school financial institutions and hedge funds.
“Remember that scene from the Sopranos, where Tony’s wife calls to buy 5000 shares of Webonics, after she was manipulated emotionally to so? Institutions and hedge funds want us to be stuck in that world. They’re scared of the future. They’re scared because, so much information is available for free now. THere’s no more fees for trading. We have large communities that discuss stocks and trading openly. We can think and make decisions for ourselves, which scares the **** out of old school institutions and hedge funds.”
This also caused famous hedge fund manager Michael Burry to speak out, saying the GameStop rally has gotten out of hand and needs to have legal and regulatory repercussions.
“If I put $GME on your radar, and you did well, I’m genuinely happy for you. However, what is going on now — there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”
He and his investment firm owns a 2.4% stake in GameStop. He declined to comment on The Edge: Markets when he sold his stock.
Elsewhere, Nasdaq CEO Adena Friedman said that this calls for some new form of regulation.
“I do think that as we look at these new technologies that are available to everyone, including investors, I think it’s also important for regulators to understand that manipulation is manipulation, whether it’s happening through a new technology medium, or it’s happening through traditional mail.
I think it’s just a matter of making sure that we understand what the behaviour is, what’s underpinning the behaviour, and working appropriately with the regulators to manage the situation, regardless of the technology that they’re using.”
"As we look at these new technologies that are available … it's important for regulators to understand that manipulation is manipulation whether it's happening through a new technology medium or it's happening through traditional mail," says @Nasdaq CEO @adenatfriedman. pic.twitter.com/iSP31KoXvm
— Squawk Box (@SquawkCNBC) January 27, 2021
The US government is now involved. White House press secretary Jen Psaki confirms that the government is “monitoring the situation”.
Biden team is "monitoring the situation" around GameStop.
— Jennifer Epstein (@jeneps) January 27, 2021
Social Capital CEO Chamath Palihapitiya chimed in on CNBC, stating that the WallStreetBets group should be commended for doing diligence and analysis work better than some hedge fund analysts. He also acknowledges the frustration and anger driving much of what the group does.
This is good TV pic.twitter.com/mSnTIWfT5p
— Alex Kantrowitz (@Kantrowitz) January 27, 2021
Despite the losses Citron will probably experience, the group is opposed to new regulations to avoid situations like this.
The WH should have more pressing issues than to investigate stock forums on Reddit. We are a nation based on free speech and capitalism. Citron has fought globally for 20 years for that right and no one trading phenomenon should eliminate it. *Our first political tweet ever
— Citron Research (@CitronResearch) January 27, 2021
Due to the popularity of the WallStreetBet subreddit, the group’s Discord server was banned for spreading “hateful and discriminatory content”. The subreddit mods have this to say:
“[W]e’re suffering from success and our Discord was the first casualty. You know as well as I do that if you gather 250k people in one spot someone is going to say something that makes you look bad. That room was golden and the people that run it are awesome. W
e blocked all bad words with a bot, which should be enough, but apparently if someone can say a bad word with weird unicode UIcelandic characters and someone can screenshot it you don’t get to hang out with your friends anymore. Discord did us dirty and I am not impressed with them destroying our community instead of stepping in with the wrench we may have needed to fix things, especially after we got over 1,000 server boosts.”
Robinhood, an app that is run by Robinhood Financial and handles investments, are restricting transactions for certain securities to position closing only; this includes AMC, Blackberry, Nokia, and GME.
— Robinhood (@RobinhoodApp) January 28, 2021
Looks like Robinhood just stopped supporting GameStop, AMC, Blackberry, and Nokia. Users can close out positions but can’t buy more pic.twitter.com/ZOE8NJuVum
— Josh Billinson (@jbillinson) January 28, 2021
We also heard that famous NBA alumni and Space Jam star Michael Jordan is bleeding money due to the GameStop trading war, as he brought in hedge fund partners Gabe Plotkin and Daniel Sundheim to invest in the Hornets. Plotkin and Sundheim, who are part of the Melvin Capital fund, are losing a ton of money due to being the many who are in the short sell GameStop plan; the total amount loss is US$5 billion due to the WallStreetBet subreddit beating rich folks at their own game.
It’ll be interesting to see how this all pans out, seeing as the money that’s lost from the short-sell has to go to another higher entity when the smoke clears.
Defiant Redditors buy Times Square billboard, possibly to mock hedge fund managers who were losing money from the short sell plan. The ad ran for an hour on 29th January (PST) and was the creation of digital billboard maker Matei Psatta.
GameStop share prices have dropped from US$483 to US$82. While that is still a 400 percent increase since last month, investors who thought the shares will be rising are facing potential massive losses. Still, some of them are refusing to sell, according to a PC Gamer report.
The US Congress wishes to have Robinhood CEO Vladimir Tenev, infamous Reddit investor Keith “DeepFuckingValue” Gill, and a few other central figures to testify, ordered by US Representative Maxine Waters. As the Chair of the House Financial Services Committee, they want to know more about the GameStop bubble. To quote Waters (via Cheddar):
“This hearing is going to be educational. It’s going to be a learning experience for everybody. We are going to have all the players—we will have Robinhood [CEO] Vladimir Tenev, I think is his name, we’ll have him there. We’ll have a young man there from Reddit, his name is Keith Gill, who basically started this mania.”
She also wishes for a representative at GameStop to show up despite the company being nothing more than a bystander.
“It’s interesting to know and understand, when you have businesses who are now disadvantaged because of the digital age, what they do and how they’re trying to turn that around, and I understand that they are working on turning it around, and that there is a real possibility that they could be successful at this. So I want them here too.”