To the moon: Explaining the current stock market situation

Kyle Thole , Website Editor

For two centuries, the stock market has been an asset used by the American people to gain more money by investing in companies. In January of 2021, this system was shown to be flawed in the modern age.

On the 11 of January, GameStop announced it had added three new directors to its board. One of these new directors brought digital experience with him, which was crucial for a company in a world plagued by Covid-19 and with gamers often buying consoles and video games digitally. This led the price per share of GameStop, or GME (their ticker symbol) to increase by a fairly significant margin, but it was all-natural. 

This led to many people trying to short sell the GameStop stock. Short selling is when an investor borrows and then sells the stock, then buys it back to return it to the lender. Short sellers are betting that the stock that they buy will drop in price. 

The Reddit group, r/WallStreetBets, knew that hedge funds would be trying to short sell the Stock of GameStop, so the group, which had about 1,800,000 members at the time, decided to buy GameStop stock to raise the price so the short-sellers would have to pay back more. Some members of the online group later claimed this movement was also done to show the flaws in the stock market and how easy it is to manipulate.

Hedge funds, to explain simply, are a type of managed fund. A hedge fund can use more than one type of investment strategy to generate returns. These often have higher fees. The aim of hedge funds is to protect investment portfolios from market uncertainty and to generate positive returns in both bear and bull markets (negative and positive). 

GameStop was not the only company that had its price per share skyrocket due to this Reddit group. Companies such as AMC, a movie chain, Blackberry, a mobile phone company, and a few others also had similar situations, but none to the extreme of GameStop.

All of this happening was due to the power of the internet. Without such large groups being able to communicate with each other, this increase of the price per share could not have happened. On top of this, stock trading can be done through online brokerages, such as Robinhood.

Robinhood, due to the large increases to GME’s price per share, decided to freeze trades for GameStop and the other companies seeing large increases to their price per share. This popular app received lots of backlash due to this decision. R/WallStreetBets said in a tweet that “Individual investors are being stripped of their ability to trade on Robinhood, meanwhile hedge funds and institutional investors can continue to trade as normal.” 

Due to the organization’s decisions, Robinhood was bombed by negative reviews on both the Google Play Store and Apple’s App Store. Google later removed these negative one-star reviews. Robinhood received many lawsuits for its actions as well. 

r/WallStreetBets has now grown to have over seven million followers the week since its original 1.8 million before the group received so much publicity. This growth shows that the group, with over triple its members (as of Wednesday, February 24, the subreddit now has 9,251,787 members), could likely manipulate the Stock Market again if given a similar situation. (writers note: on February 24, the price of GME has yet again skyrocketed, with a percent increase of 103.94%, and is sitting at $181.78 per share after market hours). 

The story of r/WallStreetBets raising the price per share of so many stocks is a classic tale of the rebels vs the establishment. Rules were set in society, and this group found these rules flawed and attempted to change them. 

Whether or not the established rules of Wall Street will change due to the revolution against the game is yet to be determined. However, this month will certainly go down in history due to the power of the internet and the flaws of the Stock Market being shown.