- What’s going on with Wall Street and Gamestop?
- How did this market volatility around GME begin?
- Class-action lawsuit filed against Robinhood
Where were you when reddit manipulated the market? I was sitting on my couch on a Tuesday, browsing some personal finance advice on a little website you might’ve heard of called Reddit when a user popped up asking, “Did I make a huge mistake putting $15K on Game Stop?” The post is now removed, but you can probably see why my interested was piqued.
While I wondered if it was too late to open a QuestTrade account and buy stock, I headed over to /wallstreetbets where the action was just getting started—I had no idea what would transpire throughout the week.
We attempt to explain the GameStop drama as simply as possible, how it’s transformed and made global news, plus, how the fiancé sector has reacted.
Stonks and /wallstreetbets: An Explanation of the GameStop Situation
So, how did Gamestop or GME become the trade du jour?
A company called Melvin Capital Management began aggressively short-selling Gamestop stock to bet against it — and members of the /wallstreetbets sub-Reddit took notice. Contrary to a statement made by Congress-member Paul Gosar, the sub-reddit didn’t necessarily advocate (in the beginning) purchasing Gamestop stock, simply informed them of the trend they noticed in the market.
After this, redditors (and eventually, people from other corners of the internet) purchased enough that stock price rose over 400% of its previous value. Once this happened, Melvin Capital lost billions in return, and Robinhood, a financial service company that allows people to trade on their platform (and conduct other financial activities they can’t necessarily do with their bank) pulled GME (along with AMC and blackberry stock, among others) from the platform so users would stop buying Gamestop (although they still allowed liquidation of GME), which prevents hedge fund managers from successfully shorting the stock and making money.
Bet on Robinhood Bankruptcy
Do you think Robinhood will declare bankruptcy in 2021? Of course, you can bet on that — Odds via Bovada.
Users file class-action lawsuit against Robinhood, turn to Voyager
Why can hedge fund managers come together and short stock, and make other decisions to influence the market, while a group of people online can’t? That’s the questions many people are asking themselves.
Statements like this from Leon Cooperman, a hedge fund billionaire are certainly helping fuel the fire of redditors keen to keep the market volatile:
“The reason the market is doing what they’re doing is people are sitting at home, getting checks from the government, and this fair share is a bullshit concept. It’s just a way of attacking wealthy people, and I think we all got to work together and pull together.”
Despite Congressman Gosar being slightly off-base that the subreddit was advocating the purchase of GME, with members saying “We didn’t advocate shit. I do not give financial advice,” And another user adding “There is no “we”. This is just a collection of individuals that like to buy shares, options, and other securities,” this does seem to be a positive development for the group—he’s just one lawmaker addressing the actions of Robinhood, and even wrote a letter to the Attorney General calling for an investigation of Robinhood, and Citadel LLC (Melvin Capital Management’s parent company). While other lawmakers call for an investigation into Robinhood’s activity, the SEC has confirmed they will investigate the situation.
Although the situation is admittedly quite complex, one interesting point the internet clings to is the fact that senators and other congress members are able to sell and buy stock related to briefings and other information they receive. For example, Senators R-Richard Burr (former chairman of the Senate Intelligence Committee—he’s now stepped down), R-Kelly Loeffler, D-Dianne Feinstein, and R-James Inhofe all sold stock following COVID-19 briefings in January, long before the public had knowledge that a global pandemic was a future reality.
While Burr stepped down from his role as SIC chairman amid public pressure, none of this was alarming enough for the trading market or those who facilitate trading (looking at you Robinhood), to implement any type of restructuring to make it ‘fair’ for those who were negatively impacted by the pandemic, while others gained financially. However, it seems unlikely that this scenario will favor Reddit and not billionaire investors & hedge fund managers.
After restricting trade on the platform, those purchasing GME stock began using the platform Voyager, and a class-action lawsuit was quickly filed on January 28, after they freeze trading activity. Robinhood eventually removed the freeze amid pressure, which resulted in another spike for GME.
Where do we go from here? Your guess is probably as good as mine. I definitely didn’t anticipate this blowing up to the extent it did while I was sitting on my couch scrolling through Reddit. However, it’ll probably end with a fizzle — or a bang.