Institutional Investors and Redditors in Standoff Over GameStop Stock

The WallStreetBets subreddit tells investors to hold for bigger gains while GME stock price is on a rollercoaster.
January 25, 2021, 6:34pm
GettyImages-526661616
Image: Richard Levine/Corbis via Getty Images

GameStop’s stock price is fluctuating wildly today. The stock hit more than $60 on Friday, a rise of almost 70 percent, and Wall Street halted trading of the stock. As trading began Monday, the stock surged to almost $150 a share. Since then it’s been a rollercoaster, with a horde of shitposters and WallStreetBets subreddit investors in a standoff against institutional short sellers and massive hedge funds to see who blinks first. 

Advertisement

As we reported last week, GameStop (which trades as GME on Wall Street) has been shorted massively, which means investors—most of them backed by big financial firms—have been betting on the stock going down in price. More stocks have been short sold than actually exist, which means that the short sellers have to "cover" the stocks at some point, meaning they have to buy actual shares of the stock. This is leading to something called a short squeeze, which is where an increased buying flurry both among normal investors and short sellers drives the price up.

What’s happening is called a melt up. “We all know the term ‘meltdown’—a sudden, chaotic breakdown of a system,” J.E. Karla, editor of the business newsletter Contention, told Motherboard via Signal. “Melt up is the same thing, just in the opposite direction. The price goes vertical, almost always due to a speculative frenzy.”

As of this reporting, GameStop’s stock is trading at $74. I refreshed my browser after writing that sentence and it’s down to $67. The investors on WallStreetBets are telling followers to hold the line, but the stock fluctuations are proof that some of them are blinking and cashing in their shares. Which makes sense, the people who bought GameStop stock early picked up the shares for around $4 each. Once it hit $100, selling became a very attractive option.

“The GameStop meltup feels like a canary in the coalmine for a market bubble,” Karla said. “It's been our position for a while that with sustained central bank action the market is closer to a tumor than a bubble, but analogies aside between this, Tesla, and Bitcoin in particular it feels very much like the peak right now. Actually, it feels like the old Roadrunner cartoons where the Coyote runs off the cliff but hangs in the air until he looks down. This GameStop thing has a lot of market movers looking down.”

CNBC Wall Street pundit Jim Cramer said he thinks we’re witnessing a paradigm shift in the market. “It’s the ‘wallstreetbets’ people.′ And they have ganged up, arguably allowed by free speech purposes, to center on a few stocks,” Cramer said on CNBC. “This is the paradigm. You’re going to see it with Bed Bath & Beyond, using a Loop upgrade. You’re seeing it for Adam Aron’s company, AMC.”

“I’ve never seen guns like this,” Cramer said. “They can break shorts.”

As time goes on, it is becoming more and more clear that the stock market is completely unmoored from reality.