Two weeks ago, Reddit broke the stock market. An internet swarm decided they were tired of finance being a game of the elite, so they sparked a financial populist uprising.
The reddit channel r/WallStreetBets decided to short-squeeze a few stocks that large hedge funds were shorting. The most notable among these stocks were GameStop and AMC Theatres.
To understand what happened here one must first understand what a short is. A short is a bet that a stock’s price will go down. If it does, the short seller profits. If it goes up, the short seller has to cover his or her losses.
A short is in direct opposition to a long position, which bets that a stock price will rise. The most straightforward way to engage a long position is to buy the stock.
The stocks that skyrocketed two weeks ago were the ones with the most short positions. AMC was on the brink of bankruptcy due to pandemic lockdowns, according to CBS, and GameStop looked like it was going to become the Blockbuster of gaming, slowly dying out like the late DVD rental store. It made sense for hedge funds such as Melvin Capital to engage short positions on these stocks.
The last thing they could have expected was a group of Reddit users hiking the price.
WallStreetBets took on the hedge funds. The ringleaders urged their 8 million plus followers to buy these stocks. The high demand shot up the price. The higher price meant that hedge funds lost money on their short positions. To do this, they needed to buy the stocks again. But the WallStreetBets group refused to sell, causing the price to skyrocket even further. Melvin Capital, the biggest loser in this event, suffered 4.5 billion dollars in losses, according to Mashable. The hedge fund lost 53% of its total value.
The WallStreetBets phenomenon was an uprising based in financial populism. Although the group itself has no political affiliation, it was labeled as a right-wing phenomenon by Newsweek. Progressives in the news media and financial institutions rallied against the short squeeze, stating that the subreddit was full of misogynists, according to the Washington Post, and anti-semites, according to the Jewish Telegraphic Agency. In essence, however, the redditors are simply disgruntled laypeople. They are young people upset with how the system was rigged. The writer of a popular post in the Reddit group was upset with how his parents had suffered through the 2008 stock market crash.
The institutions do not care, though. According to the progressive narrative, hating the rich is for socialists, who do not bet on stock prices. The reddit users aren’t socialist, and the movement has no clear political leanings. Because it is not explicitly socialist, this populist financial insurrection does not fit the narrative, and left-wing news outlets are quick to denounce it. Multiple trading platforms have tried to curtail it as well. Robinhood limited the number of GameStop stocks that one could buy last week.
The January 2021 short squeeze shows that the financial sector is no longer only for big players. It is not just a game for adderall-addled suits in New York City. Now, it is the game of internet hive minds. The cryptocurrency-fueled financial meme mania is spreading to the stock market. Aside from stringent and aggressive legislation from Washington, D.C., there is little anyone can do to hold it back.
Even as the tidal wave of the GameStop and AMC short squeeze recedes, there is little telling what WallStreetBets will go after next or whom they will inspire.
Mason Mohon is a sophomore studying Economics.