Redditors Catch Wall Street By Surprise

If you were anywhere near the Internet on January 27th, 2021, you probably heard something about GameStop, Reddit, or Wall Street. If you decided to investigate the news, you were probably either confused or elated about what was going on (unless, of course, you happened to work for one of a few specific hedge funds, in which case you were probably furious.) 

To summarize: GameStop (GME) has been losing money for years as most video game retail moved online. Its stock price, therefore, was also going down. Certain hedge funds wanted to take advantage of this certain decline and shorted GME. Shorting is when a person or fund lends stocks from someone else, sells them at the current price, and then intends to buy them back later (at a lower price) and pocket the difference after returning them to the original owner. Because GME’s value was going to continue declining, people shorted it to the point that the value of the shorts was greater than the total value of the company. After GameStop hired new vice presidents, its stock value rose slightly and caught the attention of the subreddit r/wallstreetbets. Redditors thought that if enough people in their community bought GME, the price would rise enough that the hedge funds who shorted it would have to buy back the stocks at a higher price than they had sold it, thus losing money. Going unnoticed by anyone outside of the subreddit, they put their plan into action. It worked incredibly well. GME’s price soared past any of its previous highs, even getting as high as $380. Some hedge funds, like Melvin Capital, that had heavily shorted GME were blown out of the water.

Though these hedge funds eventually got bailed out, many articles claimed this event was one of the biggest redistributions of wealth from the 1% to the common people. This may be an exaggeration—after all, most Redditors on board with the plan wanted to hold GME as long as possible, even as it went down. As of now (February 3rd) GME is at $58, not quite as low as it began but nowhere near its peak. It’s likely to keep declining until it reaches the actual value of the company. r/wallstreetbets tried to replicate this with AMC Theatres, but it was not as effective. So what should we take away from the financial events of the past week? Society cannot underestimate the power of bored people on the Internet. Social media has made organizing plans incredibly easy, and with all the free time people have because of lockdown restrictions, these plans can rope in thousands of people in a short amount of time. If people can keep harnessing the power of the Internet like this, even for unrelated matters, who knows what our future could look like?

Sophia Piper

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