The GME case on WallStreet
The shares of some companies on the verge of disaster have increased their price more than 5,000% in just three months. This is the outcome from the GME case on WallStreet caused by a reddit group called “wallstreetbets”.
Companies like GameStop or AMC have grown by a staggering percentage after a group of Reddit users started a “war” with stock market traders. They promoted a series of actions, managing to quickly increase their price, writes CNN Business.
The year 2021 began with a landmark case on WallStreet.
GameStop (GME) shares rose more than 5,000% in just three months. Most of this growth took place in January, when a massive group of investors organized to inflate the share price. Find out the details of how this curious case happened. It all started on January 11, when GameStop Corp. (the parent company of EB Games in Australia) announced that the founder of Chewy Inc. Ryan Cohen will join his board. Cohen’s investment company reportedly already had almost 10% of GameStop, but wanted to push the company further into the digital sales market. Lack of confidence in Cohen’s tactics and opinions led stock trader Citron Research to predict a massive drop in prices for the company. But the Reddit group called “wallstreetbets” which has already garnered millions of users, began to argue that GameStop shares were stronger than ever and managed to attract investors from online trading platforms.
This is the real reason why this massive group of investors have agreed to raise the price of GameStop shares. Through a Reddit forum called WallStreetBets, users analyzed which were the main companies on which they bet Wallstreet funds.
GameStop has been listed as one of the top companies on which WallStreet mutual funds have bet short. So the users of this forum agreed to raise the price of the stock to inflict losses of billions of dollars to WallStreet’s multimillion-dollar investment funds also called hedge funds. So this is how the GME case on WallStreet became the most popular in the last decade.
As most of these investors bought shares through the free broker Robinhood, the owners of this platform, who also own investment funds that were affected by the increase in GME prices, decided to restrict the purchase of these shares. Of course, they left the option to sell it activated. Everything to ultimately reduce the share price.
First of all, such a manipulation of the market is something totally illegal that generates a lot of mistrust towards the famous broker Robinhood. Second, the measure has slowed the growth of the stock, but now investors insist on raising the GME price and have managed to keep it above $ 300 (a price that is still too high).
Who wins and who loses?
Neither what Reddit users did nor what mutual funds did is right. Market manipulation is a crime to begin with. On the other hand, inflating the value of a stock in an irrational way is a huge risk and harms the market. It is basically an economic bubble that will sooner or later have to explode.
Now, remember that economic bubbles can burst quickly or slowly, and with so many new dollars being printed in the last months of the pandemic, this process is known to be somewhat slow. Taking into account the intentions of investors to harm the funds at any cost one might argue to what extent this type of investing helps or breaks the market.