Reddit v. Wall Street

On January 27, GameStop’s stock (GME) was the highest it has ever been. The video game retail chain’s stock went as high as $347.50 with frequent and significant fluctuations.

Why is this newsworthy?

To start 2021, GME was valued at $17.25 per share and has since grown by more than 1000%.

Graph via Google Finance

The GameStop boom can be traced to the internet forum Reddit, specifically a subreddit titled, r/wallstreetbets, which is home to 3.2 million “degenerates,” a term they call themselves. The r/wallstreetbets subreddit consists of risky buying tactics, good advice, bad advice, and everything in between. One user presented the idea that GameStop would be a good investment as GME’s value had fallen significantly over the course of the COVID-19 pandemic. Users pondered the idea that GameStop could recover if many of them invested, and ultimately the conversation led many on the subreddit to conclude that GME was a worthwhile investment.

While the r/wallstreetbets community put their money on the table, Wall Street disagreed. Many hedge funds (professional investors with a lot of money at their disposal) like Melvin Capital bet that the stock would fail, opting for an extremely risky venture in which the amount of money they could lose is technically infinite.

As the current situation sits, a large group of users on r/wallstreetbets caused GME to skyrocket in value. Some hedge funds are hemorrhaging money, while the average joe on reddit rakes in thousands of dollars. Steve Overlander, a frequent member of r/wallstreetbets from the Philadelphia area, claims that he made $3,000 overnight. Overlander plans to use his earnings “to pay off student loans.” He’s not the only one, many others have shared their own stories. A poster by the name u/Stammbomb shared that he’s using his money to put his family through medical procedures that he couldn’t afford otherwise.

via Reddit

Reddit investors inadvertently have many professional investors and financial institutions in a panic. The popular trading app Robinhood halted the acquisition of GME stock on Thursday over the current volatility of the market. Outrage followed as many saw this was an unfair manipulation of the market. Congresswoman Alexandria Ocasio-Cortez tweeted in response:

via Twitter

Hours later, Vice announced that Robinhood was being hit with a class action lawsuit over their move to regulate the market. This story is far from over. While many Redditors are trying to “hold the line” and not sell their GME stocks amidst the chaos, it’s unclear how this investing oddity will conclude. If you’re interested in what Redditors are thinking, read r/wallstreetbets for yourself.

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