Taking down Wall street
How a subreddit took down a hedge fund
In a David and Goliath style, retail investors takedown hedge funds and the wall street big boys. This is one unprecedented move that would forever shape the financial world and be read in history books. This is how it went down.
But first, a back story
In 2008, the financial crisis had people lose their wealth, retirement funds people lost everything because of the big boys' greed. So this is extremely personal for a lot. Not just people making bets. The point is to make a statement( clearly indicate a point of failure) and stick it to the big boys.
How it started…
A Redditor on WallStreetBets noticed Melvin Capital ( a hedge fund) short a gaming retailer.
Short is borrowing a stock at a certain price and selling, hoping for the price to go down then buy again and return it back.
For example, I borrow a stock XYZ at $10 and sell immediately, then wait out for the price to drop to say $5 then buy and return (cover back). I have made a profit of $5.
squeezed a hedge fund called Melvin Capital by buying up shares of Gamestop (GME), pushing the price higher because Melvin had shorts(puts) that GME stock would go down over time. Many people who had stock options became rich off the rich hedge fund investors.
Now this is the popular story but there is a less popular one
A Redditor and YouTuber, u/DeepFuckingValue has been buying GME stocks and argued that it was undervalued and that the fundamentals of the company were strong, and it had a promising post-pandemic future.
He even made a video
A year before, he and the legendary Micheal Burry(who saw the housing bubble) — watch the movie The Big Short — had already seen that opportunity and only was GME undervalued, it was short more than 100%.
Now that’s the problem, stocks that can be shorted are floats( stocks that can be traded) because some stocks are locked up and not traded.
So having a stock that is shorted more than 100% in the case of the GME it was 140% was insane.
How can you sell more than the traded stocks?? The explanation is, those shorting are hoping GME stock goes to zero and never have to cover their positions( repay).
The price of GME at a point went down then came back up; this is where things got interesting. Micheal Burry exited his GME position with 1,400% gain under 4 months.
Meanwhile, u/DeepFuckingValue kept holding and posting updates on the subreddit, and this is where other Redditors got interested and joined in. This further pushed the price up.
A year later, Redditors started to take notice. The price has started to inch up, from $4 to $8 to $12 over September and October. And more people on r/WallStreetBets started buying in. And then more people. And then more people.
Which, of course, makes the price go up. So the price keeps going up, and more people keep taking notice and so on. Eventually, the shorts are supposed to cover. But how? They need to purchase more shares than there are in the company. Well, that means purchasing at any price.
So they start to cover, which means buying hundreds of thousands of shares, which pushes the price up more. And then last Friday, thanks to momentum and growing interest from retail traders, we had what is called a “gamma squeeze.” Which isn’t the short squeeze!
More than the price rise, what r/wallstreetbets realized was the real effect of The Big Short Squeeze. Suddenly, the narrative became less about $GME fundamentals and more about who these short sellers were. As momentum builds on r/wallstreetbets that the hedge funds who shorted $GME are hurting, buying the stock is no longer about making money.
It’s about payback for the ’08 financial crisis.
“Eat the rich,” the subreddit chanted.
The Empire fights back
While the Big boys began bleeding, they did indeed fought back. Some shady behaviour starts going down:
Robinhood, TD Ameritrade, and more, all start restricting people’s ability to buy $GME (as well as other “meme-stonks” like $AMC, $BB, $NOK, and more).
This pours gasoline on what is already a raging viral fire.
Suddenly, this narrative is no longer confined to the walls of Wall Street — hedge funds vs retail investors.
It’s yet another example of inequality in America (and the entire world).
And Buying or Selling $GME is a signal as to which side of the fence you’re on.
So the subreddit goes
The Game…Stops Here.
“WE LIKE THE STOCK”
“HOLD THE LINE”
“BUY $GME “
First, it clearly indicates that the big boys on wall street and retailers play by different rules. The ground isn’t level. When the retailers bit the big boys at their game, the empire fights back and tries to punish them for it.
Lawmakers are getting interested and class actions are already on their way against Robinhood and co.
AOC is even particular about it, she had a twitch session with
Further down the line, decentralization….
Earlier this year, Donald Trump was diplatformed from Twitter, Google and Facebook. This has brought up a lot of questions on censorship, freedom of speech and whatnot.No, the question isn’t was it right or not as this tends to take a political turn.
The right question is, Is it right for a small group of individual have that much power and control?
Now the Big Tech and wall street are on the wrong side of things, this would further the adoption of decentralization.
No matter how this plays out, decentralization has been given a major boost.