So… Uhhh, What The Actual Fuck Is Happening With Gamestop Right Now

gamestop

If you’ve been on the internet in recent days, you’ve probably heard about a little company called GameStop, that has quite literally taken over the stock market this week thanks to douchey Reddit finance bros, Elon Musk and, well, memes.

At the time of publishing, GameStop shares are selling for $347.51USD each, up from $17.25USD at the start of January. That’s an increase of nearly 1,700% year-to-date and we’re not even out of January yet.

Madness! Stonks!

I’m going to take you on a journey to explain exactly what the heck is going on here, but before we go any further, I just want to warn you that this article isn’t about to tell you why you should drop all of your cash in NYSE:GME (Gamestop) stocks right now. I’m not qualified to give financial advice but please, do not invest your money in meme shares without doing actual research. I’m begging you.

What *Is* GameStop?

GameStop is a physical video game store in the US, much like our EB Games here in Australia. They’re owned by a parent company called GameStop Corp, which – funnily enough – is the owner of EB Games Australia.

There’s nothing particularly crazy or valuable about GameStop compared to other video game retailers. Sure, they’re the number one in America, but they still have to compete with all of the virtual game stores like Steam and the Nintendo Online Store.

Basically, big investment commentators believe that the company will eventually go under because the whole concept of a physical video game store will become obsolete.

Prior to the whole GameStonks fiasco, it wasn’t a stock that had any major growth potential, which also happens to mean it was the most shorted stock on the market.

What The Fuck Is A Shorted Stock?

To understand the whole situation, you need to understand a little concept called short selling.

But don’t worry, I’m about to explain it to you like you’re five, because that’s the only way I can understand it.

To put it extremely simply (you can read more about it here) big companies place a short-term bet that the value of a company’s stock (usually smaller stock like GameStop was) will decrease.

These companies – in theory – borrow the stocks, sell them immediately, then actually buy them when the stock price drops, thus allowing them to pocket the change.

It’s super risky and not something I’d recommend partaking in unless you *really* know what you’re doing.

However, the situation, in this case, was even more messy because short sellers (aka big hedge funds) had actually purchased more shares in GameStop than what actually exist. This means that if everybody wanted to cut their losses all at once, they physically couldn’t, which is basically what the Reddit finance bros capitalised on.

So What Sparked GameStonks?

The whole shebang kicked off on January 11, 2021, when GameStop Corp announced a new member of the board.

This guy, Ryan Cohen, already had a 10% stake in the company but joining the board meant that he wanted to push them further into digital sales, which resulted in leading stock commentator Citron Research basically predicting that the value of the company would plummet.

And now, entering stage left, we have r/wallstreetbets.

Where Do The Reddit Bros Come Into This?

If you’re not a big stonks nerd like me, you may not have heard of this cursed corner of the internet. But basically, r/wallstreetbets is like a frat house for (mostly) men with no actual finance qualifications to swing their dicks around about which stonks they’re investing in on any given day.

To paint a nice picture for you, it’s run by a guy whose name is u/DeepFuckingValue. So, uhh, that just about sums it up.

It’s an interesting place to see what’s going on in the world of stonks, and *sometimes* you can learn things, but it’s not a place I’d advise you to go to for any sort of legitimate finance advice.

So basically, the r/wallstreetbets bros reportedly heard the predictions about GME stocks, and -knowing that it was the most shorted stock on the entire market – decided to have some fun with it.

They then spent the following hours and days counter-arguing that GameStop shares were good, actually, better than ever. A bunch of people invested, and – because of the way the stonk market works – the strength and value of the shares were massively inflated.

And I mean MASSIVELY.

It’s worth noting that u/DeepFuckingValue himself posted a screenshot of himself investing $53,000 in the company back in 2019, according to Vice. So prior to the whole GameStonks fiasco, he was already heavily invested in the company. Make of that what you will.

Obviously, when the price started to quite literally skyrocket, a bunch of people took this as a sign that the company was actually doing super well and jumped on the bandwagon too, thus further inflating the already balls-to-the-wall high stock price.

So What Does This All ~Mean~?

This was a great thing if you had a couple of GameStop shares that were originally worth $5 and were now worth $250. However, the same can’t be said about hedge funds, who used these penny stocks for short selling.

So basically, big hedge funds like Melvin Capital Management were shit out of luck and unable to make a profit on their stonks, which quite literally caused them to have to seek a bailout of nearly $3 billion USD to pay for said short stocks.

Yes, $3 billion because of a stupid Reddit joke. It’s madness.

But to make matters even worse, when the stock prices rise as quickly as they have in the case of GameStop, the original broker (aka the guy who leant the stocks to the big hedge fund dudes) can immediately issue a margin call and force the hedge funds to return the stock at whatever price it now is. In the case of GameStop, they would now have to return the stocks at the $300 price, even if they borrowed them at $2.

This is a BAAAAD time for the short-seller, and causes the inflated value of the stock to climb even further in what is known as a “short squeeze.”

So basically, we’re currently just watching a seemingly endless loop of more hedge funds getting royally fucked over while the price of GameStop continues to rise.

So Who’s The Winner Here?

Individual investors – whether they’re Reddit finance bros, Elon Musk, or just people who jumped on at the right time – are making money off the short squeeze, while the big hedge fund guys are losing big time.

Again – and I simply cannot stress this enough – this is *not* a reason to chuck all your money behind GameStop right now, especially if you’re not well-versed in the stock market.

Actually profiting off these sorts of short squeezes, especially off the back of a literal meme requires expert timing, with the individual investors having to jump off the bandwagon and sell their stocks before the speculation ends and GameStop presumably goes back to it’s original value.

There are lots of theories on when that will actually happen, including some theories circulating the r/wallstreetbets subreddit that the stock will peak at $5000 USD when all of the hedge funds are forced to ask for bail outs. But because a lot of this is tied up in “memestock” it’s super hard to actually tell what the absolute fuck will happen next.

Is This Even Legal?

The legalities of the whole situation are kind of a grey area because r/Wallstreetbets isn’t really manipulating the market in the same sort of way that can actually get you done for insider trading and other investment/money-related offences.

Because all of the information they’re working with is readily available to the public, it’s unlikely that anyone will actually go to jail for it. But we will probably see some of the big hedge funds go bankrupt as a result.

So, Uhh, What The Fuck?

The situation is quite literally developing too quickly to even summarise it at this point. Since I began writing this story, Discord has banned the Wall Street Bets channel, the subreddit r/wallstreetbets went private, then went public again and the stock price itself has continued to fluctuate.

GameStop is just one of many stocks that the Reddit finance bros have been playing with, with Nokia, Blackberry, Blockbuster and other popular shorted stocks all copping heavy investments from r/wallstreetbets punters. But ultimately, it’s a risky game, and not one that I’d recommend joining in on (but again, I’m not a financial advisor).

What’s The Moral Of The Story Here?

It’s all a big mess and feels very Robin Hood ‘steal from the rich to give to the poor’ sort of vibes (although I’m not alleging anyone broke the law).

Personally, I think the main takeaway from this whole ordeal is that capitalism a big sham and the foundation of the stock market is flimsy enough to be completely borked by a bunch of weird dudes on the internet who probably snort coke off the toilet seat of your local bar and don’t shower as much as they should.

But hey, that’s show business, baby. *jazz hands*


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