This week the stocks of GameStop (GME) are skyrocketing to astronomical levels. The video game retailer is one of many struggling companies who are seeing their share prices going up by young day traders who coordinate through social media sites like Reddit. Other companies that are sharing similar treatment include BlackBerry (BB), AMC, and Macy’s (M).
Since the start of January, GameStop’s shares are going up to more than 1,700%, and its market value is believed to worth around $23 million to $2 billion. According to CNN, the cost for GameStop’s shares in 2020 was $4, now it cost $200. This dramatic rise has cause trading platforms such as Robinhood and TD Ameritrade to place restrictions for trading with GameStop’s shares. The phenomenon has even caused the U.S. Government to monitor the activity surrounding GameStop.
Among the young day traders who are spiking GameStop’s stocks, there have been hedge funders and short-sellers who are betting that the stocks will crash. These people are the Wall Street elite, a section of people who are detested by Millennials and Gen Zers. The reason for distaste of the elite is due to their belief that the Wall Street elite are to blame for the 2008 Recession which hampers the prospects of Millennials and Gen Zers careers.
Why Is This Happening?
One reason why some traders are investing in GameStop is due to the company being undervalued as video games have become an important pastime to get through the COVID-19 pandemic. Granted, those who are shorting GameStop (the Hedge Funders) believe the company struggling to get sales as gamers are not coming to stores/malls often due to the pandemic.
However, the company has recently seen a change in its board members with the addition of three new directors. Chief among them is Ryan Cohen, co-founder of Chewy, who is revitalizing GameStop for the online market.
With the ability to use no-fee trading apps such as Robinhood, many traders have easy access to buy GameStop’s stocks. Furthermore, people are coordinating with each other on various social media platforms such as Reddit, Facebook, and Twitter.
A notable figure is Keith Gill. Under the alias “Roaring Kitty,” Gill is seen as an inspiration for those who are going out and buying these stocks. Although he initially received little attention for his investments in the company, Gill built a following through YouTube and Tiktok videos about his investments which has led others to follow suit.
So What? Why Does It Matter?
How will this be looked back upon in retrospect? From what we are seeing, this event may show a change in power. It has been said that the wealth of Millennials and Gen Z will go up in the future, this may be a major step for them in reaching that goal. For them, this is a chance to pay off those student loans, buy a house, and realize financial security. Hedge Funders are trying to fight back but are currently on the losing side. Some describe the event as a battle between the old and the new.
However, with the restrictions of trading imposed by Robinhood and Ameritrade, GameStop’s stocks have taken a fall. But there is an uproar from those who are wanting to see the retailer’s shares go up. Eventually, those restrictions were eased as investors were allowed to trade albeit with a limited amount.
This recent phenomenon is called a bubble. It is a surge where participants are driving stock prices higher than it is valued. This is a bubble that will keep going up until the bubble bursts. We don’t know how and when the bubble will burst but at some point, it will. We may have seen early signs of how the bubble will burst, but that could be a mere fluke. With all of that being said, this event has left a stir and will bring forth a new era. Who would have known that a group of Reddit users investing in a video game retailer is making history?
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Kharif, O. (2021, January 27). What’s the $23 Billion GameStop Really Worth? Maybe $2 Billion. Retrieved January 29, 2021, from https://www.bloomberg.com/news/articles/2021-01-27/what-s-the-23-billion-gamestop-really-worth-maybe-2-billion
Morrow, A. (2021, January 27). Everything You Need to Know About How a Reddit Group Blew Up GameStop’s Stock. Retrieved January 29, 2021, from https://www.cnn.com/2021/01/27/investing/gamestop-reddit-stock/index.html
Popper, N., & Browning, K. (2021, January 29). The ‘Roaring Kitty’ Rally: How a Reddit User and His Friends Roiled the Markets. Retrieved January 29, 2021, from https://www.nytimes.com/2021/01/29/technology/roaring-kitty-reddit-gamestop-markets.html
Pound, J. (2021, January 27). GameStop jumps another 100% even as hedge funds cover short bets, scrutiny of rally intensifies. Retrieved January 29, 2021, from https://www.cnbc.com/2021/01/27/gamestop-jumps-another-50percent-even-as-hedge-funds-cover-short-bets-scrutiny-of-rally-intensifies.html