The recent short squeezing isn’t a new thing for any longer.
Everybody has heard something about it.
Well, if you somehow missed out on this big news of the year, we’ve got you covered.
So this is about GameStop, and how an average-joe market community managed to jack up its price scrip sending hedge funds into a tailspin.
How Old is the GameStop Saga?
Well, this buzzing short squeezing story began in June 2019. There was a life insurance agent, Keith Gill, who used to invest in the share market.
Keith Gill believed that investors could find value in unloved stocks.
During that time, the GameStop shares were priced at $5.
GameStop is a brick and mortar video game shop in the US known for selling CDs and DVDs. Where the world has undergone a massive technological change, this shop is selling such old-fashioned products.
The Result – The stock prices are supposed to go down.
Many believed that the company was about to shut down in the next 4 to 5 years.
At that time, the company was in search of its 5th CEO.
With the belief that investors can find value in unloved stocks, Keith Gill began to buy GameStop shares and continued to do so for as long as a year.
Thanks to GameStop stock, he invested as much as $755K in the company that counts for $48 million today.
Yes, that’s 100% true.
So, how did this happen? Let’s find out!
The Basics of Short Trading of Shares
Taking a short position means borrowing stocks from a broker and selling it soon after the current market price.
Institutional investors sell out these stocks in the market, hoping the prices falling sharply. They do this to buy back the stocks at the lower price and return the shares they borrowed to the broker.
By doing this, they end up making a tidy profit.
This happens with a large volume of shares.
Such a massive rise in a heavily shorted stock forces short seller (institutional investors) to buy more shares to cut losses.
This results in a further price jump, triggering losses for those holding short positions.
This was the gameplay between the institutional investors and retail investors.
A subreddit has about 8.9 million members. In September 2019, someone in the subreddit community posted about bankrupting institutional investors by short-squeezing their position in GameStop stocks.
The post had instantly gone viral, and soon it was a hot topic of the stock market industry.
According to the Sub-Reddit, the institutional investors had taken a short position in the GameStop stocks and were on the lookout for the stock prices to reach their lowest point so that they end up minting a handsome profit.
The subreddit decided to take on these investors, mainly hedge funds. They were determined to take the GameStop stock prices to the moon by buying the company shares in big numbers.
They began to buy GameStop stock in bulks which caused a sharp jump in GameStop share price. This forced the hedge funds to buy back the shares at higher prices, resulting in further bumping up the share prices.
This resulted in a massive price increase of the GameStop shares, and the hedge funds incurred huge losses.
The Result –
- The GameStop market revenue increased from $2 billion to $24 billion within a matter of days.
- The company shares jumped upto 1700% between December 2020 and January 2021.
- The company stocks reached its all-time high of $483 as of January 28, 2021.
The Dark Side
While the retail investors greatly impacted the hedge funds in their own game field and were trying to gain small profits, another game took place.
The institutional investors were trying to leg-pull the retail investors with a coordinated attack.
Discord banned the subreddit server where they used to discuss the buying and selling the stocks with a flimsy excuse of spreading hate speech.
Even Robinhood, a trading app used by small investors to buy shares, cut off the buying and selling the GameStop shares.
While these nasty games were being played against the small investors, many big people ganged up. They went on for a TV interview explaining “what retail investors are doing is completely wrong, and we should bring this to regulation to stop this from happening.”
The World Needs Decentralization
So, what is the conclusion to all this?
With all the discussion, we have realized how the market is manipulated by the major industry players for their individual profits.
It is important to understand that GameStop is just one name that happened to come into the light and exposed centralised authorities’ entire market manipulation.
This has shown us why DECENTRALIZATION is of so much importance today. There has to be a system where no single authority has all the control, and everyone gets the equal-level field opportunity.
The decentralized applications (dApps) are basically digital applications or programs that run on a P2P network of computers called Blockchain.
There are already many corporations working on the decentralized networks to offer a trustless solution to their customers. Gladly, people are taking so much interest and willing to be part of this Decentralized Revolution.