Revolution on Wall Street

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WallStreetBets, Gamestop, Bitcoin, Dogecoin… What is going on? While WallStreetBets may be behind all this euphoria in the equities and cryptocurrency market, it does come at a painful cost for those who aren’t careful. The COVID-19 pandemic has forced millions across the country into working from home, which played a critical role in sparking people’s interest in investing in the market with more time on their hands. Robinhood and many other platforms which market their services to the younger generation, specifically millennials and Gen-Z, saw a massive increase in downloads and monthly users. People who had no prior investment or trading experience are throwing their stimulus checks into the market, playing around with highly volatile and risky small cap stocks, most of which you’ve never heard of. Heading into the new year, Gamestop, the brick and mortar video game retailer, announced that it appointed three new directors to its board which sought to revamp their e-commerce space and reestablish shareholder value. Gamestop rallied over 50% as a result of the news. This announcement caught the eye of several Reddit users on the popular investment subreddit called ‘r/WallStreetBets’ and with even further research, people found out that stocks such as Gamestop, had significant short sellers. 

 

When someone is “short” a stock, they are betting that a stock will go down in the foreseeable future. They would borrow shares from a broker, sell them, wait for the share price to drop, buy the shares back and return them to the broker, and amass the difference. However, when a stock ends up doing the opposite of what a short-seller is anticipating, they could receive a “margin call” where they’d have to buy shares to return it to the broker, which would then drive the share price up, inevitably losing money as a result. 

 

The folks at WallStreetBets noticed this, and also discovered that massive hedge funds are among the largest short sellers of the company. Popular WallStreetBets figure Keith Gill, most notably known as “DeepF***ingValue” also touted the stock, publicly revealing his large long position in Gamestop and anticipating that the share price will continue to go up. As the euphoria continues, a critical short seller research firm named “Citron Research” posted a series of tweets saying that Gamestop will inevitably fall and mocked the WSB community saying, “We understand short interest better than you…” This constant back and forth continued, but as time has told, Gamestop continued to soar. On Jan. 27, Gamestop opened up at $354.83, representing an over 140% gain since the announcement just 2 weeks ago. As a result of this insurmountable move, the early short seller Citron Research as well as another large hedge fund named Melvin Capital announced that they closed their positions and incurred massive losses as a result. Just like that, WSB had won the battle. Not only did many make money, they “squeezed” the hedge funds which are notorious for manipulating and exploiting retail investors for too long. As mentioned on popular threads, it was payback. 

 

While this may have sounded like a perfect fairy tale, it came at a very expensive and painful cost. The notion that Gamestop went up may drive the idea that everyone who bought it, made money. In the stock market, every share bought is a share that had to be sold, it’s an exchange. Those who bought at the top because of a WSB post with flary sayings such as “to the moon” may now be bag-holding shares at extreme valuations. As of market close on May 21, Gamestop shares are now at $176.79, representing a 60% loss from its highs. Those who had no idea what they were doing and bought in because of the extreme excitement and FOMO (fear of missing out) that came with the WSB movement have lost a significant amount of money and in some cases more than they can afford. Jason Alarcon, Junior at TL, adds, “I can understand how this movement wasn’t perfect because this did come at the expense of some everyday people, but at the end of it all, everyone succeeded in taking down the men in suits that have manipulated things for too long.” 

 

Even now that the Gamestop fiasco may have calmed down, WSB has expanded into other stocks such as AMC Entertainment, Clover Health Investments, Rocket Companies, and most particularly, cryptocurrencies, where the fight is still ongoing. Bitcoin has been the epitome of cryptocurrency, the face of the industry. However, nowadays, lesser known coins that are being issued in very sketchy and abnormal ways are being pumped hundreds and even thousands of percent on a given day simply because their ticker name seems “cool.” Dogecoin was started as a joke by a software engineer named Billy Markus, who named the cryptocurrency after the famous “Doge” meme which features the Japanese Shiba-Inu breed. Since it’s all-time low on May 6, 2015, Dogecoin has returned over a staggering 600,000%, beating Bitcoin’s over 80,000% return since its all time low. Other coins such as SafeMoon and the presumable Dogecoin knockoff, Shiba Inu Coin, are obscure coins which gain massive popularity on the internet, being “pumped” on social media sites such as TikTok and YouTube. It also certainly doesn’t help that prominent figures such as Elon Musk, CEO of Tesla and many other innovative companies, are tweeting and remotely hijacking the prices of Bitcoin. Musk was at the center of attention for not only touting Dogecoin prior to his Saturday Night Live debut on May 11, but changing course on Tesla’s decision to accept payment on Tesla cars citing “environmental concerns”. As a result of the Bitcoin decision, the cryptocurrency fell off and plunged to lows haven’t seen since February of this year. 

 

While this optimism is shared throughout the crypto community, questions lie upon the true fundamentals of crypto itself ranging from its intrinsic value to its subjectiveness to government regulation. Jason is highly confident about the future of cryptocurrencies collectively. “I wouldn’t say that there is a bubble in crypto in general, it was just the fact that Elon Musk happened to mention it on his Twitter and bring attention to it that makes it seem that way. I think that crypto will see a lot of success and it is here to stay even through the fears of the government coming in or any future doubts… crypto is certainly the future.” 

 

Whether it was Gamestop and AMC or Bitcoin and Dogecoin, the new generation of traders and investors have shown that their power and influence should not be undermined. They squeezed some of the wealthiest out of their positions in stocks and are now establishing cryptocurrency as the novel and innovative technology to encapsulate the world as we head into the future. Although there is controversy over its ethicacy and legitimacy, WallStreetBets and this generation of investors are not a simple joke.