The WallStreetBets effect: What happened in GameStop's crazy week

How one subreddit — and a tech-friendly new way of investing — is shaping the market.

The WallStreetBets effect: What happened in GameStop's crazy week

Big day for GameStop.

Image: JJBers/Flickr

How do you push a stock up 140% in a few hours and 1,800% in a month, turning a once-crashing stock of a maybe-still-crashing company into one of the market's biggest winners? Well, you should ask r/WallStreetBets.

  • The 6 million subscribers to the r/WallStreetBets subreddit have long had market-moving power. And members have been pushing GameStop as a stock to invest in for almost two years, actually, based on what has seemed like fairly straightforward financial reasoning.
  • But the volume has gone crazy in the last few days. And the recent spike seems to come from something simpler: The WSB investors just … deciding to do it. A few enterprising investors decided to try to punish those who were shorting the then-still-cheap stock, because what you always need on the internet is an enemy.
  • That initial enemy was Andrew Left of Citron Research, who was a loud and large bettor against GameStop. Squeezing him — forcing him to buy more shares to cover his short position as the price went up, which then by itself would drive the price up — became goal No. 1 for WSB members. (Here's a good explanation of how that back-and-forth went down.)
  • That worked, which got other people on board, which caused larger investors to get in, which drove up the price, which made those first investors look like geniuses, which made more people pay attention. Round and round things went.
  • The WSB team is confident its strategy can work. "IM NOT SELLING THIS UNTIL AT LEAST $1000+ GME 🚀🚀🚀🚀🚀🚀 BUCKLE THE FUCK UP" was the title of a top post on the subreddit on Monday, from the user dumbledoreRothIRA.

The WallStreetBets investors see the moves as a power grab, taking the market back from the institutional investors who have always manipulated money in secret. For a while on Wednesday, the top post of on the subreddit was titled "FOR ALL THE BIG FUCKING HEDGE FUNDS MONITORING US, THIS IS A MESSAGE FROM US TO YOU, WE FUCKING OWN YOU NOW, FUCK. YOU."

Why GameStop, though? You can't overlook the connection with gamers, but it also helped that Michael Burry — one of the investors who predicted and made a fortune from the 2008 economic crisis — has been publicly saying the company was undervalued.

  • More recently, Chewy's Ryan Cohen bought a big stake in GameStop and has started pushing it to become a more viable online business.
  • It all sounds a bit like an internet con or a long-term troll, a bunch of people doing it for the lulz. "It certainly started as a meme. That's how WallStreetBets operates," Jaime Rogozinski, who created the subreddit, told Wired. But the lulz are moving the market.

GameStop's stock has had a wild week, up as high as $468 and down as low as $69 and often fluctuating wildly in the course of a couple of hours. Trading has been halted repeatedly, as the markets try to slow down the insanity, but to no avail. Insanity always immediately ensues.

  • Nobody caused a bigger jump than Elon Musk, who tweeted "Gamestonk!!" with a link to r/WallStreetBets on Tuesday night and promptly sent the stock up more than 100% in after-hours trading. Musk is a proven market-mover at this point, repeatedly moving prices up with a single vague tweet (even, in Signal Advance's case, when that stock has nothing to do with the product he's tweeting about).

The strategy worked gangbusters ... for some users. (It's easy to tell, because they love posting screenshots of their gains.) And they're not just focused on GameStop:

  • BlackBerry, for one, couldn't explain the sudden spike, but r/WallStreetBets could. "I AINT SELLIN 🚀🚀🚀🚀 BB TO THE FUCKING MOOONN 🌑🌑💎💎🤝🤝🚀🚀🚀🚀🚀," wrote user AnyHoneydew4, warning that even a brief dip in price was only a sign that things would keep booming.
  • The WallStreetBets crew is also betting on AMC, Tootsie Roll, Bed Bath & Beyond, Nokia and a number of other stocks that are both rich in 90s nostalgia and longtime favorites of short sellers. Their prices spent the week driving relentlessly upward.
On Thursday, Robinhood caused a ruckus when it banned users from buying new shares of GameStop and many of these other stocks. Robinhood cited "recent volatility" as the reason for trying to slow the market down, but all that did was turn investors' ire on Robinhood instead. They review-bombed Robinhood on the App Store, and began threatening and planning class-action lawsuits. Webull appeared to be the biggest beneficiary, as people looked for a new place to trade ... until it stopped allowing the same trades.
  • By Friday morning, though, things were back to relative normality. Rather than the more conspiratorial explanations for the stoppages on Thursday, it appears the answer was just that funding all those trades, for Robinhood or anyone, became really expensive. Robinhood, for example, reportedly raised $1 billion practically overnight just to be able to keep up.
  • Robinhood initially said it didn't have a liquidity problem, before ... ultimately determining it had a liquidity problem. "To put it in perspective, this week alone, our clearinghouse-mandated deposit requirements related to equities increased ten-fold," the company said on its blog. Single stocks like GameStop were trading so much they cost Robinhood hundreds of millions of dollars in deposits.
  • "Back to normal" doesn't apply to the meme stocks, of course. As soon as trading resumed on Friday, they shot back up; GameStop nearly doubled on Friday morning alone. And everything from AMC to Dogecoin (yes, really) was along for the ride.

The biggest remaining question, other than "when will the crash come," is what the regulatory implications will be here. Alexandria Ocasio-Cortez and Ted Cruz have both called for hearings into what happened with Robinhood, and appear likely to get them. And Elizabeth Warren took the SEC to task for not being more involved: "To have a healthy stock market, you've got to have a cop on the beat," she said. "That should be the SEC." Robinhood in particular is also facing huge damage to its reputation, even if it avoids the scarier legal ramifications.

But as much as anything, the GameStop Fiasco is a remarkable display of the collective power of the internet. Enough people, with enough motivation (and enough money) can turn a dying store that sells CD-ROMs into the most exciting company on Wall Street.

Updated: This story was updated on Saturday, Jan. 30, to reflect the (many, many, many) new things happening with GameStop since the story was written.

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