The seemingly obsolete and outdated video game retailer recently GameStop saw its stock price soar from about $15 to $480 in a two-week span, with initially no apparent explanation. GameStop has seen back to back years of declining sales, yet toward the end of January, its stock soared to its highest price ever.
The frenzy began when a group of people on Reddit, an online social network used for organized discussion, decided to take on the hedge funds on Wall Street and buy tons of shares of GameStop (GME), effectively raising the price of stocks. Hedge fund managers were “shorting” GME, meaning they were selling it before they had it and buying it later when the stock decreased in price.
Since both Redditors and Wall Street investors started buying stock, the price rocketed, but the frenzy was stopped when CEO Vlad Tenev of the highly used online brokerage application Robinhood,froze trade on GME. Tenev absolutely made the wrong decision, as freezing trade crushed the price of the stock, causing innocent investors to lose much of their investment while bailing out the Wall Street hedge funds from losing even more money.
The mass coordination, the hype, the life savings that investors poured into this generational opportunity were all but destroyed by Tenev’s choice. Robinhood unfairly halted trade for GME that resulted in people wrongfully losing money and a loss opportunity to finally get back at Wall Street.
According to CNBC, Robinhood’s freeze on GME trade caused the price to drop nearly 20%, which caused many owners of the stock to sell their shares and put an end to the frenzy. The people most affected by Tenev’s unfair actions have to be those who purchased the stock near the apex of its price, only for Tenev to betray the users of his own app and cause the price of GME to plummet. Millions of Redditors along with other investors looking to capitalize on the surging stock wrongfully lost money because Tenev froze GME.
Wall Street has been virtually financially invincible through even the toughest crashes, with certain hedge funds making tens of millions during the 2008 recession, according to BloombergQuint. The GameStop fiasco in January was one of the biggest losses Wall Street had ever seen, with billion dollar hedge fund Melvin Capital losing 53% of its wealth, according to CNBC. Tenev ruined what was one of the few chances the people have ever had to take a shot at Wall Street.
Prominent media outlets outrageously took the side of Wall Street and vilified the day traders for messing with the market and even accused them of insider trading and market manipulation. The frenzy will ultimately go down as the true attempt of a David vs. Goliath situation in the terms of the stock market, but Goliath, a.k.a.Wall Street, inevitably won the battle this time around.
Many politicians shared their opinions on the issue, with many siding with the Redditors and other investors. The justifiable outrage against Robinhood and Tenev was so strong that Rep. Alexandria Ocasio-Cortez and Sen. Ted Cruz agreed that Robinhood overstepped its boundaries. Vlad Tenev and Robinhood are under investigation for the situation, and Tenev was most recently questioned by Congress on Feb. 18 as the situation continues to develop.
What happened in January was what looks like a once-in-a-lifetime occurrence, as hedge funds will be better prepared for this situation in the future, and the hype that caused so many people to buy into GME will likely never be matched. A generational opportunity for “the little guy” to make tons of money and take a shot at “the suits” was all but destroyed by none other than Vlad Tenev, who chose to bail out Wall Street instead of allowing the Reddit-fueled craze to fully prosper.
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