Wall Street adjusts to a post-GameStop world

Ethan Chan ’23

Wallstreetbets. Amateur day-traders. Reddit. Melvin Capital. Elon Musk. “To the moon.”

     These are just some of the familiar names, companies, and phrases involved in the meteoric rise and fall of common stocks such as GameStop and AMC. Both stocks had risen over 500% respectively in a matter of days and caused over $400 million in losses for hedge funds such as Melvin Capital. Despite their near overnight success, what exactly fueled this phenomena? 

     Earlier this year, a group of individual investors through a group better known as WallStreetBets planned to put a squeeze on several hedge funds on Wall Street. Hedge funds such as Melvin Capital bet on the fall of GameStop shares and WallStreetBets acted accordingly.

     Logically, this seemed impossible to pull off. These amatuer investors were going against analysts whose jobs revolved around the well-being of the stock market. Afterall, GameStop wasn’t a company that attracted investors. It was the type of store one would find on a strip mall. To exacerbate the poor returns of GameStop, it had been heavily affected by the pandemic. This was a dying company and only a miracle could save it from bankruptcy.

Elon Musk was seen as the dark horse in the GameStop scenario. His often sporadic tweets have resulted in the sudden rise and fall of Tesla shares.

     The collective effort from these individual investors, small brokers, and others buying shares, this caused GameStop’s market value to sky rocket over $22 billion in less than a week. The seemingly crazy increase in GameStop’s stock value caused an uproar in the business world, namely the younger generation with Wallstreetbets. In the eyes of many young GameStop investors, they had leverage over these hedge funds and outsmarted them. 

Elon Musk, SpaceX Chief Engineer participates in a SpaceX Demonstration Mission 2 Launch Briefing, May 27, 2020 – NASA/Bill Ingalls via Wikimedia Commons

     Elon Musk was seen as the dark horse in the GameStop scenario. His often sporadic tweets have resulted in the sudden rise and fall of Tesla shares. By promptly stating “Gamestonks” on Twitter, the gaming company saw a substantial increase in stock price. At the time, there was no definite limit to GameStop and other common stocks that would follow suit, thus emerged the term “to the moon.” GameStop was very well on the course to the moon until Robinhood, a popular trading platform, stopped all trade for it and similar stocks.

Although no one knows who will be going to jail, CEO’s of Reddit, Robinhood, Melvin Capital, and Citadel Securities will testify before the U.S. House Financial Services Committee.

     On the morning of January 28, Robinhood stated that it would prevent users from buying stocks such as GameStop in light of market volatility. In response, day traders and those involved went into a frenzy on the internet. Significant figures that advocated for the rights of the traders involved were not limited to Barstool Sports’ Dave Portnoy, Representative Alexandria Ocasio-Cortez, and Senator Ted Cruz. On Fox News, Portnoy firmly stated, “Somebody has to go to jail for this. This was intentional market manipulation.” 

     Although no one knows who will be going to jail, CEO’s of Reddit, Robinhood, Melvin Capital, and Citadel Securities will testify before the U.S. House Financial Services Committee on February 18. After the events that occurred regarding Robinhood, several stocks including GameStop saw high levels of short interest consequently dropping the stock prices significantly. 

     One can only think of former stockbroker Jordan Belfort, the infamous main character in the 2013 film Wolf of Wall Street. Making his short-lived fortune off of “pumping and dumping” penny stocks, Belfort found success but was ultimately indicted for security fraud and money laundering.

Co-founder and co-CEO of Robinhood Vladimir Tenev speaks onstage during TechCrunch Disrupt NY 2016 at Brooklyn Cruise Terminal on May 10, 2016 in New York City. – TechCrunch via Wikimedia

     Although many stockholders of GameStop and AMC won’t share the same fate, there was a threshold that Belfort breached due to his greed that caused his downfall. The urge to keep on holding for many of these traders was a notion of greed and the unpredictability of these stocks.

     From these events, many lessons can be taken away. The rise of GameStop and other similar stocks were the byproduct of the united power of the people and the internet. Those who have a monopoly over the economy and market can dictate to their interests.

     Going forward, the market is still unprecedented in its next step. Will there be a next GameStop? All we can do is see what will happen and “hold.”