Game on: Reddit Users Battle Hedge Funds in a Race to the Moon

Over the past few weeks, the subreddit r/wallstreetbets rallied around Gamestop and AMC stocks to fight against the hedge funds. The movement left some people with a life-changing profit and platforms like Robinhood facing ethical dilemmas about their role.  

The stock market is viewed in terms of the long game. People invest as soon as they achieve a decent salary in order to accumulate assets for later in life. Over the past few weeks, the perception and nature of the stock market changed in a revolutionary fashion. 

On the Reddit thread r/wallstreetbets, a group of traders banded together to battle against giant hedge funds. Some of the users identified stocks that these hedge funds were “shorting.” According to Investopedia, “shorting” is betting against the stock rising and making money as it falls. The “Redditors” targeted GameStop as the stock the hedge funds were going to short. 

GameStop, labeled as GME on the stock exchange, was struggling as both a business and a stock as gamers turned more often to digital sales of games and Amazon for physical games. Once the mecca for gamers, GameStop’s popularity and viability was falling as stores all over California were closing. 

Still, due to all of the shorts that were invested into GameStop, Redditors felt that GME was the stock to invest in. On Jan. 12, the stock hovered around $20 as it had for the past few months. A week later, the stock rose to $40 per share. Then on Jan. 26, the stock rose to reach $380 per share by the time of closing. The total growth is 1,476.21 percent over the course of the whole month, with the majority happening during the Reddit turnout. 

The Reddit thread, composed of now millions of people, features users from all walks of life. There are plenty of success stories from the Wall Street revolution. Take this student, who asked to remain anonymous, at UC San Diego: he is a senior from Revelle College majoring in economics. He joined the Reddit thread around two years ago, after his brother told him to join it. Luckily for him, his activity paid off as he paid attention at the right time. 

“I was just going through my social media like usual,” the student told the UCSD Guardian.  “Twitter, Instagram, my Discords for school, and then I end it with some Reddit scrolling. I usually check r/wallstreetbets and r/ucsd on a daily basis with relatively minimal attention. I saw a bunch of people talking about GME and I googled what it was. When I found out it was GameStop, I quickly just kept scrolling, thinking it was a troll.”

The following day, he went to check on the Reddit thread and found a flood of messages about GME with a series of rocket emojis. Up until this point, he had bought some penny stocks and thrown in some money on major stocks like Apple and Tesla. The anonymous student found the courage to buy 10 shares at $90. The investment ended up providing some serious profit. 

“I sold around when the share price was around $380 because I thought this was absolutely the ceiling,” the student told the UCSD Guardian. “I ended up face-palming the next day because the stock would end up reaching the mid-400 at some point the next day. I still did pretty well for myself, so I am not complaining.”

Stories like the one from this student are found all over the internet. There are people that bought in earlier, with all of their savings accounts that now have life-changing money. Even children are making money from the movement; a kid who received some GameStop stock for his birthday gained some good returns on an odd gift. 

Redditors targeted stocks other than GameStop as well. AMC Entertainment received a flood of money from the group when some users found hedge funds were also shorting AMC stock in droves and decided to stick it to them. 

The stock price of AMC was around $3 per share on Jan. 22. The stock rose $16 per share by Jan. 27 and peaked at $20 per share that day. With this 500 percent growth, people who missed out on the GameStop boom        ?.  

A local member of the San Diego community, Rob Brown, remained patient after he missed out on the GameStop wave. According to an article by Jonathan Horn of ABC San Diego, bought 2,000 shares at $4.85 and then sold those shares the next day at $16.50. Cases like Brown happened all across the United States. 

The entire movement against hedge funds that short started on Reddit. The specific nature of Reddit allowed for users to communicate among themselves. In the study “More Than Just Cat Pictures: Reddit as a Curated News Source,” Steven Ovadia investigated the inner workings of Reddit as a platform to figure out how it curates news. 

“Because users vote on content, higher quality content often seems to rise to the top of the page, although that judgment is subjective and obviously excludes the lower-voted content, which is harder to find and compare against,” Ovadia stated in his study. 

The content in a Reddit thread that rises are the more popular posts that have received an “up-vote.” As more people stumble upon the post, they can vote on whether it is worth being shared or not. Users in r/wallstreetbets, therefore, can display information about the stocks that are being shorted the most, and as the post receives more upvotes, the more the information circulates. With this information in hand, the users can strategize on how to best attack these hedge funds and organize hype for a specific stock.

Reddit’s platform, on top of democratizing the curation of content, allows for the publisher of the information or viewpoints to further engage with other members of the subreddit. The subsequence effect allows for information to develop into ideas about how to act.

“They found this ‘distributed moderation’ made for more civil discourse, so while it might seem overly democratic to some users more familiar with traditional websites, where all content is presented in an order of importance determined by site editors, there is an argument for engaging the community in the presentation of the content,” Ovadia wrote in his study. 

While Reddit started this wave of investment, Jan. 28 featured a halting of trading on the investment platforms. The most notable one, Robinhood, shut down buying shares in GameStop, AMC, and other stocks that were receiving a high volume of trading. 

The temporary suspension of trading resulted in the stock prices for AMC and GameStop dropping a considerable amount as people panicked to sell their shares before their platform stopped them from doing so. AMC reached a low of around $7 and GameStop plummeted to around $125 per share. Traders were left unable to purchase even during the dip in price on larger platforms like Robinhood. 

Robinhood halted the investing in these stocks by citing “financial requirements” too difficult to meet due to the “volatility” of the stocks. The timing of the restrictions on these stocks prompted questions about the legality of this move and whether they were simply bailing out the hedge-fund billionaires. 

The public outcry grew so much that a lawsuit was filed against Robinhood, alleging that it “purposefully failed this mission and failed their clients in an attempt to — what appears to be — appease their investors and/or potential investors,” according to a Fox Business article. The lawsuit also pointed to manipulation of the free market. The intentions of Robinhood remain unknown until the lawsuit is taken to court, but the consequences of their actions caused fallout that reached thousands of people 

The fallout from Robinhood’s actions left many people who invested in these stocks or planned on doing so with nothing to show for. Another student at UCSD, a freshman from Muir College, had an order to buy AMC and GameStop stock before the shutdown. Once Robinhood stopped the trading of these stocks, his order was canceled. 

“I was looking at the charts on the app and I was blown away by the gains that the stock was showing,” the student told the UCSD Guardian. “Redditors sounded as if they were going to hold and keep taking the stock to the moon. Unfortunately, my order got cancelled. The stock dropped that day and the next day and I know I should have bought the dip. I could have made so much money considering how much it is going for now. I have Robinhood to thank for my gains all being potential and, you know, not actually real.”

The stocks GME and AMC, as of the day of publishing, are able to be bought and sold in the Robinhood app and most platforms. The stock prices recovered, although they remain lower than the high they reached earlier in the week. 

As for r/wallstreetbets, the Reddit group had grown from thousands of members to millions with their subreddit, receiving so much traction that it would crash from time to time. The group is now split into factions of people who want to focus solely on GME to take down the hedge funds and others who are more focused on smaller stocks like AMC, Nokia, and Blackberry so that they can experience a wild ride “to the moon” and make hedge funds lose money at the same time. 

Out of all these stocks, an unexpected champion emerged from the fallout: Dogecoin. Dogecoin is a cryptocurrency that began in 2013 as a meme, its mascot being a Shiba Inu dog. The currency is volatile, as most cryptocurrencies tend to be, with a large boom occurring during the time in which Robinhood disallowed investment into any of the stocks redditors were targeting. 

Some members of the group turned their attention to Dogecoin as they sought to take the currency from less than a cent in value to one whole dollar and beyond. As a way to stick to the government, they rallied behind the alternative currency, taking it from $.01 to as high as $.08 in one full day. 

The volume and volatility of Doge coin is so high that Robinhood is instituting a five-day waiting period on any purchase of Dogecoin. 

The future target of r/wallstreetbets remains unknown for now. The group allowed people to expand their wealth as a group and fight back against hedge funds that take advantage of the market for their own gain. The unique characteristics of Reddit allowed for the information to be democratised and shared with thousands of people so that they could attack Wall Street all at once. 

With a Reddit group remaining invested in the fight against hedge funds, investment services will need to prepare for future volatility and volume increase in the marketplace. As information about shorted stocks is circulated, r/wallstreetbets members will stock up on ammunition against Wall Street. 

Photo by energepic.com from Pexels.

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