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Reddit Pushed GameStop Stock So High That The US Government Is Now Involved

Reddit Pushed GameStop Stock So High That The US Government Is Now Involved

When memes go too far.

Ewan Moore

Ewan Moore

Who had "Reddit declares war on the US stock market" written on their 2021 bingo card? Anyone? If you did, you've won a prize. The last few days have been a fascinating fight between the internet and Wall Street itself. The arena for this most unexpected battle? American video game retailer GameStop.

The retailer's dwindling stock market value was on something of a path to recovery in the second half of 2020, helped by a new partnership with Microsoft, the next-gen console launches, and the promise of financial gains during the holiday season. Then, seemingly out of the blue, the company's share price blew up from under $20 to, at the time of writing, $347.

What happened? In a word, Reddit. This massive jump has been largely pushed by online communities like the WallStreetBets subreddit. A tweet on January 19 from Citron Research warned that GameStop share prices would go back to $20 fast, and those buying higher were "suckers at this poker game". Citron is - or rather was - a GameStop short seller, which meant that it wanted to see the price go down. The higher it got, the more the firm would lose. Recognising this, WallStreetBets decided to work together and drive the price up.

Reddit also took on Hedge fund Melvin Capital Management, which is one of the largest shorters of the GameStop stock. While Reddit wasn't the sole factor behind GameStop's surge, it played a pivotal role. Oh, and Elon Musk got involved at one point. It's been a week.

To be completely honest, the below Tweet explains it better than I ever could.

That's how it all started. But it is of course still going on and doesn't seem to be slowing down. This entire GameStop saga has had a massive impact on the stock market, to the extent that Melvin Capital Management ended up needing an investment of nearly $3 billion just to stay alive after GameStop first started to rocket upwards.

CEO Gabe Plotkin has told CNBC that reports the company was coming close to bankruptcy are false, although Melvin pulled away from GameStop and left Reddit to it on Tuesday afternoon after suffering a "huge loss".

The ramifications of what this means for the American stock market are yet to be seen. While some are praising Reddit for proving beyond all doubt that the stock market is a strange and complicated mess that's held together most of the time by sheer force of will, others are concerned about the precedent the GameStop situation has set.

GameStop Stonks /

Social Capital CEO Chamath Palihapitiya praised WallStreetBets run as "a pushback against the establishment," to CNBC, and argued that those involved are doing "as good, and frankly a better job" than many hedge fund analysts. He also pointed out that many of the redditors who took the initial risks are driven by an anger at the way the stock market is run - and ruled - by a select few.

"Coming out of 2008, Wall Street took an enormous amount of risk, and they left retail as the bag holder," he explained. "A lot of these kids were in grade school and high school when that happened. They lost their homes, their parents lost their jobs, and they've always wondered, 'Why did those folks get bailed out for taking enormous amounts of risk, and nobody showed up to help my family?'"

At present it's important to remember that none of what Reddit has done is illegal in any way, but some are now calling for regulators to consider the way advances in technology can be used to share information on the market, and how that might impact things going forward. Of course the minute the people who were always winning start to lose is when the rules have to change.

White House press secretary Jen Psaki also recently confirmed that the US government is "monitoring the situation", which suggests that this story is far from over.

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Topics: gamestop, News