Reddit is pumping GameStop’s share price into the stratosphere and opposing Wall Street. Parallels to Bitcoin’s meme culture can also be discovered.
Anyone who thought things would return to normal in 2021 was wrong. Because despite the economic crisis, the financial markets are turning completely free. This financial January, wild in many ways, reached its preliminary climax in the battle between David and Goliath. Of course, there is talk of a coordinated short squeeze by users of the Reddit image board. What happened there and why the process is also interesting for Bitcoin investors.
At the center of the Causa, Reddit Short Squeeze is an actually rather inconspicuous company: GameStop. The computer game retailer has had a tough time. After all, cloud-based gaming threatens to end the business model. The corona-related lockdowns and the associated shop closings hit the seller twice as hard and the sword of Damocles of bankruptcy has been hanging over GameStop for some time.
This trend has not escaped Wall Street, or rather Melvin Capital, a well-known US wealth manager. The finance manager went short — but really. Basically, Melvin Capital was betting on the total ruin of GameStop (NYSE: GME) with the intention of filling its pockets in the process.
So-called short sales make this possible. Behind this is the practice of throwing borrowed shares on the market and buying them back at a later date, and returning them to the broker who originally lent the shares. If the price falls between these two actions, shortsellers make a profit.
The short orgy was spurred on by Citron Research, a well-known stock market paper from the USA, and Andrew Left, one of its authors, who is also one of the country’s best-known shortsellers. Left had caused quite a stir last week with a sell recommendation for GameStop shares. Probably also because, as a short seller, he would have benefited massively from a price decline.
But Citron Research, Left and Melvin Capital had done the math without a new generation of hungry stockbrokers. GameStop’s swan song on Reddit caused a sensation and they quickly agreed to go to trading apps like Robinhood Long and to thwart what they saw as the manipulative machinations of the Wall Street conglomerate. What happened next should make stock market history. Because instead of falling into the abyss, GME shot through the roof. The price of the stock was on January 21st, still US $ 43. A week later, on January 28th, it was $ 347.
The reason for the extraordinary increase was not just the sheer volume of long positions, but also a so-called short squeeze. Because if share prices increase in value within a short period of time, short sellers see themselves forced to liquidate their positions. This usually means that shorters will close their positions at a loss. But they can only do this if they buy back shares in the market and then return them to the brokers from whom they originally borrowed. The resulting demand, in turn, creates more buying pressure on the market and further increases in prices: The result is a short squeeze and huge green candles like GME’s on the stock market.
When coordinating the action, in which some already speak of market manipulation, u / DeepFuckingValue played a role above all. The Reddit user went long with over 10,000 GameStop shares in October last year and has been betting against the greats of Wall Street for some time. In his latest update, the user shares his profit margin with the community. And they can be seen:
What Reddit and Bitcoin-Twitter have in common is their aversion to what they see as manipulative games in the financial system. Bitcoin Twitter also relies to a large extent on Internet memes such as “Money Printer go brrrr,” a reference to the excessive monetary policy of the central banks, for the dissemination of information . The course history of GameStop impressively shows us that memes can be quite successful. It’s a David versus Goliath fight. After all, actors like Citron Research have an interest in lower prices to cover their short sales at low cost. Reddit users oppose this with memes like “Diamond Hands,” the r / WSB counterpart to Hodlers.
Parts of the Bitcoin community have also been talking about rates above 100,000 USD for years. With a current all-time high of $ 42,000 in January this year, this seems to be normalizing more and more.
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