What Happens Next In The GameStop Saga?
GameStop has been the biggest story on the internet in the past week.
A bunch of Redditors banding together and sticking it to some Wall Street bros has become a kind of weird but also totally cathartic story.
So what actually happened? And what is the GameStop legacy – have any wider implications come with this story?
The GameStop Sh*tstorm
Alright, so here’s the simplest explanation of what went down.
GameStop is literally just a video game and electronics retail chain in the US.
The share price of GameStop was (reasonably) predicted to fall because frankly a physical store selling games doesn’t really have the best chances for survival.
These Wall Street hedge funds, specifically one firm called Melvin Capital, had what’s called a ‘short position’ on GameStop. Essentially, they made some big bets that the share price of GameStop was going to plummet.
That bet would have paid off if it hadn’t been for a bunch of Redditors who decided to f*ck with them.
WallStreetBets is a sub-Reddit that was created so people could share investment advice, and when they cottoned on to Melvin Capital’s bet, they bought a shitload of stocks in GameStop.
Hedge Fund Bros Took A Massive L
It absolutely destroyed the hedge funds’ plans.
Last year GameStop was valued at 400 million USD and Redditors managed to drive that up to 10 billion in less than six months.
It’s unclear exactly how much cash has been lost by these Wall Street hedge funds because of this, but Melvin Capital had to get a 2.75 billion USD bailout from two other investors after it took the Reddit hit.
There were endless memes and Tweets celebrating this David vs Goliath victory against extremely rich investors because, for the majority of WallStreetBets Redditors, driving that stock price up was never really about making cash. It was more about gaming the ultra-wealthy who invented these games.
So, what happens to GameStop now?
Well, GameStop’s inflated share price will not be staying up there for a start.
James Doran (School of Banking and Finance, UNSW): “This thing will settle itself out. There’ll be no more levered exposure and we’ll see GameStop’s price absolutely crash.”
There’s also some risk here for WallStreetBets, which has put people on edge.
It’s a super satisfying story for a lot of people on social media, but there are obviously now going to be people on Wall Street looking for blood.
JD: “We’ve seen instances where regulatory bodies – whether it’s the FCC or FINRA, or any sort of stock oversight agency – will step in and essentially enforce laws to suggest someone’s doing market manipulation.
It’s stock manipulation but at the same time, I don’t believe we should necessarily come in and stop somebody from doing this, because the hedge fund put themselves in that position … The market is there to essentially make you pay if you’ve made a poor decision. That is what the free market is about.”
What About Robinhood?
There’s also the question of what will happen now with the stock trading and investment app, Robinhood.
Redditors were using Robinhood for this GameStop squeeze and at a certain point the app actually ended up blocking trading by all small retail investors.
That freeze has pissed off people on both sides of the political spectrum.
Weirdly, Alexandria Ocasio-Cortez and far-right Senator Ted Cruz had a moment of agreement on Twitter when they both criticised Robinhood’s decision to stop these small investors from freely trading.
AOC said she’d support a hearing about Robinhood because it was clearly weighted against the Redditors.
Could GameStop Happen Again?
It’s all been a massive (admittedly quite entertaining) mess but I asked James if something like this could ever happen again.
JD: “The conditions that we’ve seen here, the extent had to be right, the stock had to be right, the exposure had to be right and this is what allowed it to take place. With the right situation, we could see more of this and then we have to ask ourselves – is this what we want the stock market to actually represent? … We want prices to reflect some representative value.”
The GameStop story has been a historic moment for the stock market and for the social internet.
The full consequences of GameStop haven’t totally played out yet but the saga has exposed a lot about the obvious power imbalances in the stock market and, if the conditions are right, it might be something we see happen again in the future.