In recent days the value of GameStop's shares has skyrocketed. News that may surprise many. In recent years we have seen indeed disappear from the cities many of the chain stores, in crisis due to the increase in online sales.
Unfortunately, the newfound success of the title does not correspond to the health of the company, which remains very bad. It has something else to do, in particular a sub Reddit among the most peculiar on the social: r / Wallstreetbets.
A brief history of r / Wallstreetbets
r / Wallstreetbets is a rather… strange place on the internet. Born in 2012 by a user banned from the main finance forums for his too extreme attitudes, Wallstreetbets knows its first success in 2016, in parallel with the spread of apps that allow you to trade on the stock market easily and without commissions, such as Robinhood.
The climate between the forum posts not what you would expect among competent high finance operators. It's more of a tornado of memes, insults, astronomical gains and disastrous losses, often drawing the hilarity of many outside observers.
the wallstreetbets discord needs to be heard to be believed.
it's the modern day version of being on floor of NYSE. pic.twitter.com/QqKIz94yvU
- jpa (@josephpalbanese) January 26, 2021
Many stories of disastrous investments have found r / Wallstreetbets a first-rate stage, but the site jumped to the headlines in the US just last year.
The Covid 19 epidemic was destroying the world economy and all Wall Street stocks were in free fall. So r / Wallstreetbets users decide to use a particular financial instrument, short selling, to make some money on the misfortunes of others.
In short, short selling is a gamble. Bet a title goes wrong, and if it happens you make money. Keep this concept in mind, we will need it shortly. Everything seemed perfect, astronomical earnings were waiting for users, you just had to have the courage to continue betting.
But of course, it didn't all go as planned. In April, the US government decides to flood the market with an unprecedented amount of money. If you've ever seen the “Money printer go brr” meme, this is its origin. Liquidity lifts the markets, which despite the economy in recession, are rebounding. And Reddit bettors are left empty-handed, fooled by the rest of the internet.
GameStonk. Revenge of r / Wallstreetbets
But as in all great stories, our heroes don't give up. Join the game u / DeepFuckingValue, user of r / Wallstreetbets ready to revive the fortunes of his comrades. In a YouTube video, Deep identifies in GameStop a title on which short sellers are exaggerating. The company is bad, but not that bad.
If someone trusted him, the shares would rise, and this would cause a phenomenon called short squeez. All the bettors who are betting their money on the total collapse of Game Stop, at the first sign of recovery of the title would have bought back the shares, making their value skyrocket.
This theory has been around for more than a year, but only on 11 January 2021 does it begin to materialize. Ryan Cohen, a major investor, buys 10% of GameStop shares and joins the board of directors. For Reddit it's the signal.
Users rush to GameStop's actions, buying a huge amount. Some also resort to options, a tool similar but opposite to short selling, which bets on the rise of a stock.
So, in the last week, the unthinkable happens.
The shares of GameStop, junk until a few weeks ago, are slinging at unprecedented values, causing numerous suspensions of the title for excess of rise. The short squeeze happened, everyone rushed to buy back the shares in the chain. It's Gamestonk.
Elon Musk also gets on the wagon, always the most prominent interpreter of the strange part of the internet. Meanwhile the short sellers are losing their bets, and with it a lot of money. An estimate by S3Partners speaks of 3,3 billion dollars, with the most exposed investment funds that have lost up to 30% of their value.
Gamestonk !! https://t.co/RZtkDzAewJ
- Elon Musk (@elonmusk) January 26, 2021
How long this speculation can last is not certain. The most optimistic users are hoping that theinfinity squeeze, a very rare event where short sellers buy back shares until they are sold out, which happened in the past at Volkswagen. But the bubble is likely to deflate sooner and the stock to normalize.
Surely this is the most successful operation ever carried out by r / Wallstreetbets, who took his revenge for all the failures of the past. A rematch that is frightening some experts. Perhaps finance will have to deal in the future with a mass of irrational and inexperienced investors, whose only logic is “Yolo”.
AGGIORNAMENTO 28/01/2021 8:30
The chaos caused by the GameStop title speculation caused the reactions that were expected. During the Italian night, then in the evening in the USA, many finance experts have expressed their concern about what happened, asking the government for measures in particular against trading apps that allow easy access to the stock market.
The CEO of Nasdaq, the stock market index under which GameStop falls, has asked for the suspension of the stock to allow large investors to readjust their position. In fact, many funds would be exposed to speculation and would risk huge losses.
Meanwhile, the attention r / Wallstreetbets has drawn to itself has also had unpleasant consequences. The Reddit sub is now private, to allow administrators to better analyze access requests. Meanwhile, Discord has shut down the dedicated server, causing the ire of the administrators.
AGGIORNAMENTO 28/01/2021 11:50
The reddit sub r / wallstreetbets is back public and now you can find a link to a new community Discord server.