What's Happening with GameStop—and with AMC and BlackBerry—is a Really Big Deal.
A timeline of the troll-y war that Reddit, TikTok, and YouTube waged on Wall Street's hedge funds through 'Gamestonk'—and what we can learn from it.
At the beginning of 2021, one share of GameStop stock ($GME) traded for around $17. Last week, that number began to climb. On Friday, Jan. 22, the price surged more than 70%, triggering a halt in trading. On Monday, Jan. 25, the price again soared so high it prompted the New York Stock Exchange to halt trading 9 times. By this morning, GME had climbed to a staggering $380 per share in premarket trading.
While the price has since settled below that peak, at the time of this writing GME is up 1574.3% this month. The three largest shareholders of GME have all become overnight billionaires. “GameStop” was a hotter Google search term in the U.S. yesterday than “Biden” or “Tesla.”
GameStop, which launched a year before Blockbuster, is a hanger-on of a bygone brick-and-mortar era. For many, the idea of going to physical stores to buy physical games is anathema to the convenience of today’s at-home, online games marketplace.
Understandably, GameStop’s stock price—and the general faith in its future success—has been sliding over the past few years. And while the latter is likely still true, the market would seem to reflect the total opposite.
So why is GameStop stock suddenly surging?
To quote Donald Glover: because the Internet. It’s a story that sits at the intersection of several forces:
a new crop of “retail traders” that has emerged through popular apps like Robinhood
the network effects of “the crowd”
It’s fascinating as a standalone tale, but it’s also powerful signal of the shape of reality to come. It begins on Reddit, TikTok, and YouTube, and features protagonists with names like “Roaring Kitty,” “DeepFuckingValue,” and “Senior_Hedgehog.” Also…the real-life guy Christian Bale plays in The Big Short, Michael Burry.
Covid-19 is the inevitable backdrop to so many stories, but in the case of this one, what’s important to note is that there are a lot of people who are stuck at home, bored, and possibly seeking less conventional avenues for making money. To say this has been advantageous for Robinhood—a brokerage service app that allows anyone to invest any amount into the stork market with zero commission fees—is an understatement. By May of 2020 alone, the app had already added 3 million new accounts. While it’s not the only app of its kind, by October of 2020 it commanded 50% marketshare in the online brokerage industry by download volume.
The app has been criticized for gamifying the investment experience, and came under particular scrutiny after news broke that Alexander Kearns, a 20-year-old man from Naperville, IL, committed suicide due to an incorrect notice from the app that he owed $730k. There is a whole lot to unpack on the rise of retail traders that would take up too much space in this story, but I encourage you to read Scott Galloway’s “Our young people are addicted to screens — and online trading platforms may be the next menace preying on them.”
Enter: Reddit—in particular the subreddit r/WallStreetBets, which describes itself as “like 4chan found a Bloomberg Terminal.” It has ballooned alongside the rise of these online brokerage apps, now sporting 3.3 million users (the final million of which have joined in just the past day). Here’s a quick timeline of the milestones on Reddit leading up to now:
In a post on the subreddit in March 2019, user delaneydi makes the case that GME is undervalued.
Later in 2019, hedge fund operator Michael Burry (Christian Bale in The Big Short) buys up 3% of the company when GME is worth less than $5 per share)
Burry’s move then prompts redditor DeepFuckingValue to post about it on WallStreetBets
In April 2020, redditor Senior_Hedgehog identifies GME as “THE BIGGEST SHORT SQUEEZE OF YOUR ENTIRE LIFE”
In Jan. 2021, Ryan Cohen, co-founder of online pet food retailer Chewy, announces he and two associates will buy into GameStop (his investment firm, RC Ventures, now holds a 13% stake) and take seats on the company’s board.
Hype ensues at WallStreetBets and Cohen garners the moniker “Papa Cohen.” It is at this point that talk of “mooning” GME begins in earnest on the subreddit—and spills onto YouTube and TikTok.
As Elizabeth Lopatto explains in The Verge:
For a while, the idea that r/WallStreetBets would take over GameStop was a joke — but then it turned serious, Bloomberg reported. The idea was to punish short-sellers, and for the little guys to pummel Wall Street.
NOTE: I am not a financial advisor. Do your own diligence before making any investment decisions, and only ever invest what you’re willing to lose entirely.
In essence, short-selling is a trading strategy that involves betting against a stock’s improvement. Traders borrow shares of a stock at time x with the presumption that by set time y it will have decreased in price, allowing these traders to pocket the difference. Given GameStop’s dwindling avenues to reclaim or even re-enter its market, GME had become a reliable bet for shorting to many traditional short sellers.
That is, until r/WallStreetBets upended their expectations by creating artificial demand for GME through a series of posts about buying GameStop options. I’m not going to get into options trading (learn more here) or the weird machineries of Wall Street, but this piece on CNET by Ian Sherr is a succinct explainer. The upshot is that their plan worked, to the detriment of short sellers and investment research firms like Citron Research and Melvin Capital. A concerted effort by communities on Reddit, TikTok, and YouTube boosted the GME short squeeze, amounting to over $5 billion in losses as of Jan. 26.
Elon Musk even got involved in the hype.
In other words: a bunch of people on the Internet trolled Wall Street short sellers out of billions of dollars and now it’s a meme.
And now that it’s happened with GME, similar actions are being taken with stock and options for AMC, Bed Bath & Beyond, BlackBerry, and others.
Why it’s a Bigger Deal than just Trolling
This is undoubtedly a strange (fitting) story for a strange (insane) moment, but it’s also an important signal for the speed and scale with which realities can now be created, manipulated, and transmitted.
We can identify the pieces of the equation: Robinhood, the ever-extending pandemic, the anti-establishment impulse of certain Internet communities—but the part that has the deepest and most far-reaching implications is the power of the crowd to leverage network effects to abruptly bend, or even break, a system.
It is already a seismic moment for Wall Street and legislators. The SEC has stepped in to “actively monitor” the situation. Per a statement released today:
Consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants.
And it’s safe to assume this is just the beginning. Wall Street is either going to find a way to thwart this type of action by changing its own levers, push for legislation to that effect, or find a way to exploit this force for its own ends (or any combination thereof). Time will tell, but no matter how you cut it, it’s wild that a bunch of Internet goofballs were able to prompt change in an institution as fortified as Wall Street. Update: since the time of this writing, the WallStreetBets page went briefly private before returning with this post from the moderators of the subreddit. Notably, they included the news that Discord banned their Discord server. Meanwhile, Robinhood restricted trading of GameStop, AMC, and many others. Per an official statement:
In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK.
TD Ameritrade has taken similar action to restrict certain kinds of trading.
Right now this is an underdog story that involves a hilarious dunk on an easy-to-hate target. But the toothpaste is out of the proverbial tube; now the whole world has seen how proficiently one of the most impenetrable systems on the planet was legally (at least so far) hacked by a group of everyday people largely through social engineering and game mechanics. In other words, they learned an existing infrastructure, identified how they could manipulate it as a collective, and deployed at scale—literally changing reality.
Every day, the number of folks who intuitively understand these platforms increases—which will only increase this type of collective action, and in verticals that might not seem as immediately apparent as Wall Street. Cultural phenomena that find success move from fringe to center, mutating from their original use, meaning, or purpose. If social engineering and game mechanics can impact the economy this dramatically, think of the other places where something like this could happen. It’s fun to applaud the puckish, ahem, Robin Hoods in their attempt to disrupt the goings-on of the world’s financial elite, but the picture changes when, for example, we’re talking about authoritarian governments using this strategy as part of a coordinated disinformation strike.
There’s not a clear solution for these negative possibilities yet, but what is clear is that, in a context of ubiquitous, instant information, reality is created in spaces of convergence. With GameStop, the cocktail of social media savvy and financial literacy allowed a group of people to leverage collective action to powerful effect. This cuts both ways; by proactively identifying the ways that seemingly different trends, communities, or industries overlap, any one of us has the opportunity to uncover new languages and new possibilities—and not just those of us in tech. These innovative convergences might be waiting to be discovered in fields as diverse as library science, supply chain management, graphic design, food & beverage, or medicine.
I know it’s a lot to digest, but there’s as much opportunity as there is threat. Let me know if you’re a person working at the intersection of different ideas, studies, or systems—I’d love to learn about the discoveries you’re making in the process.
Copyright © 2020 Jesse Damiani, Reality Studies. All rights reserved.