The Battle Between the Stock Market and the Internet

Photo+uploaded+by+Flickr+user+Dan+Keck.

Photo uploaded by Flickr user Dan Keck.

   On Jan.11, GameStop stocks began to spike due to a message on a Reddit message board calling for independent investors to invest in the failing company and spite the hedge funds who were shorting the stocks.

   In the digital age, GameStop has been a dying brand. The advent of online gaming overtaking in-person sales has been slowly killing the company, similar to what happened to BlockBuster, a dvd rental company from the early 2000s. Where Blockbuster died out due to companies like Netflix taking over the film business, GameStop began to suffer due to online gaming companies like Steam replacing the need for purchasing games from retail stores. 

   By the end of 2020, GameStop’s stock had already dropped far below $18, and had hedge funds like Citron and Melvin Capital trying to “short sell” the stock at a profit. Short selling is where investors borrow a share, and sell it, only to buy it back later at a (hopefully) lower price, and keep the difference. 

   It is a gamble on whether or not a stock will continue to fall, and, in GameStop’s case, it only continued to plummet. However, by the beginning of 2021, a co-founder of Chewy, a company which sells pet supplies online, joined the company’s board of directors. He tried to change the company from retail stores over to digital sales, and, in doing so, managed to raise the stock to $19.94.

   To many, this small step seemed like a huge upturn for the company. As such, a Reddit group called r/WallStreetBets decided to play a joke: mass invest in GameStop stocks. The Reddit group consists of around 6 million people, the majority of whom are small investors within the stock market. They single-handedly raised the company to be a Fortune 500 company (one of the wealthiest 500 companies in the world). 

   They also targeted a few other stocks that were notably getting short-sold due to the pandemic, like AMC. As the stock skyrocketed, hedge funds started to rapidly lose money, with those involved with GameStop losing over 5 billion dollars already. 

   A few investment companies temporarily prevented investors from purchasing these stocks, while hedge funds were still free to buy and sell as they wished. One of the most notable of these companies was Robinhood, which advertises itself as “investing for everyone”. 

   This move sparked outrage from investors and politicians. Many accused the company of protecting it’s hedge fund backers and preventing free trade on the stock market. 

   Rep. Alexandria Ocasio-Cortez tweeted that “This is unacceptable. We now need to know more about  @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.”, with her political rival Sen. Ted Cruz tweeting that he “fully agree[s]”.

   Some investors have started class-action lawsuits against companies that blocked free trade of stocks, such as Robinhood. A firm in Cleveland, Ohio, called ChapmanAlbin LLC, has been working with said investors. 

   Their homepage currently displays a prompt saying “Are you a Robinhood user who has suffered losses?” alongside ways for users to input their information.

   With Robinhood and other investment companies encouraging the investors to quickly sell their stocks, many among the investors encourage people to keep buying, and save their stocks until the price rises further.