About a week ago, everyone seemed to suddenly start talking about GameStop, WallStreetBets and Robinhood. For some reason, Wall Street hedge funds were also involved. The amount of attention the story got actually made it even harder to follow. So now, when the noise has subsided, we prepared a handy recap about what is happening with Robinhood and WallStreetBets. How did it come to involve cryptocurrencies? Rest assured we answer that, too.
How and When did It Start?
The whole story didn’t happen overnight (though it surely felt like it). Before we get into what happened with WallStreetBets, let us introduce the characters.
GameStop Corp. (GME) is a chain of shops that sells physical copies of video games across the US. At its beginning, it was a solid business model but things inevitably changed. Amazon and other retailers came into the market offering physical copies with shipping. A while later, digital downloading took over the video game market.
The executives came up with the plan to rebrand as a chain of social gathering hubs (right before 2020 hit). Why was GameStop shorted? After all, it’s not hard to understand, the chain being essentially a dying business.
Enter WallStreetBets. It is a community mostly present on the subreddit with the same name. The gist of WSB is mostly ordinary people dabbling in investing and trading, with a thick coat of irony and nihilism. The latter factor played into the choice of stock: many Redditors are also gamers. The nature of the subreddit has led to the mainstream media calling the situation “a WallStreetBets controversy”.
The one to inspire the recent move could have been WSB user DeepF*ckingValue (came to be known as DFV). Back in 2019, a post with the deep-value case for GameStop was made. Another user proposed WSB take over GameStop, and that’s when he got into the stock. DFV quickly became widely known in 2021 when the GME stock brought him life-changing yields. The rest of the community quickly rushed into it, accelerating the growth further.
Since most WSB traders are non-professionals, they need brokers to trade. One of the most popular brokers and apps out there for trading is Robinhood. The popularity of the app factored into what it is now considered a Robinhood controversy, but more on that later.
What was Happening with the Price?
Before the Robinhood controversy, the situation was heating up for a while. If we were to pinpoint a certain point when the whole thing spiralled out of control, it would be January 21.
Like we said before, GME was not something that WSB did not know of. In fact, it was already quite a popular stock. Of course, not everyone believed so.
Mainstream stock analytical outlet Citron Research was among those that thought GameStop is going to zero. Furthermore, Andrew Left (the person behind the outlet) was outspoken about his short position in GME. First, he saw the rising interest in the stock as an opportunity to reinforce his opinion. However, when the announced day and time came, @CitronResearch was suspended due to a mass number of login attempts.
Once he restored the access, Andrew Left doubled-down on his take. Tweeting something like that was basically challenging the subreddit and asking for trouble. On the next day, when the market opened, GME scored a local high of $76. On Monday: $159.18. And this was only the beginning. WSB seemed to get into one stock all at once. Its current ATH is $508.04, more than ten times more than when it all began.
TradingView user MrRenev made a chart showing not only how the price skyrocketed. In their analysis we can see the timeline of shorting and how did it come back to bite the bears. For the majority of 2019 and 2020, GME was trading below book value. From the chart it is quite clear that the bears were suppressing the price for this to happen. In September, the price finally escaped the range below $6.46. However, as pointed out, the shorting continued and even exceeded the total supply of GME. Incidentally, it did not take long before “WallStreetBets goes nuts”.
What is the Robinhood Controversy?
The situation got out of hand but it hasn’t turned ugly yet. What happened with WallStreetBets next? The alarms started to set off when hedge funds started to lose money.
Namely, one of the most notorious funds in this case is Melvin Capital. Their short position was so significant that the growth in GME stock cost them billions of dollars. At one point, Citadel and Point72 had to bail it out with $2.75 billion. Melvin lost this, too.
There was no way that Wall Street would just let that happen, people started saying. What could they do? One of the possibilities involved the Securities and Exchange Commission. But there was a catch. Is WallStreetBets illegal? By no means. This was not market manipulation, at least, not by the legal definition. There was no intent to pump the price with the goal to sell shares for profit later. People got into GME because they “like the stock”.
Wall Street investors started to call for other forces to intervene. They tried to deplatform WSB on the grounds of starting a WallStreetBets controversy and a harassment campaign. The strategy resulted in the WSB Discord server being banned and the Reddit community going private for a while. However, the ideas were already out there and the movement spread on to other platforms.
The stock market itself has some mechanisms to regulate trading. Last Monday, the wild fluctuation caused the market to trigger nine trading halts. But this was not enough to stop the buyers.
What was enough, though, is to simply stop the buying altogether. Robinhood app disabled the option to purchase GME and other rallying stocks, which started the Robinhood controversy. Users review bombed the app on Google Store and the Congress called for investigation. (The real reason, though, seemed to be that the broker went broke).
How did Crypto Tie into this?
Remember we said that the movement was no longer confined to a subreddit or stocks? This is when it poured into other markets, and crypto as well.
Robinhood also supports a range of cryptocurrencies: Bitcoin, Ethereum and Dogecoin. Despite the Robinhood controversy, the app was still being widely used. WallStreetBets, empowered by the sense of unity and accomplishment, started looking into other assets they could take off the ground. Dogecoin seemed to be a perfect pick.
Elon Musk allegedly had a personal vendetta with short sellers, as they have repeatedly tried to short Tesla stock. A vague tweet and a Clubhouse meeting later, the WSB had a focal point to pour their attention and money into. Dogecoin momentarily grew by 500%.
Dogecoin was not the only winner in what happened with WallStreetBets. Next, Musk added the Bitcoin hashtag to his bio, which caused it to jump from $32 to $37k. (By Saturday, the price was back into its previous state).
Meanwhile, the XRP Army was preparing for a comeback. The Ripple CEO came forward with a statement to the SEC about the accusations being unjust, and the sentiment rose. The holders, known as the “XRP army”, started to shill the coin to the people recently opened up to investments. As a result, the XRP price broke from the $0.03 slump up to $0.7 in just two days.
Tweets and Posts
The best representation of the whole situation can be found in the subreddit that started it all. By the time the situation blew up, there were almost 2 million members. Now there are more than 8 million of them. DFV is still with the community, holding his shares even though selling would have made him a millionaire. Memes, posts of encouragement, situation updates — the forum has it all. Maybe it’s the chaotic and extremely obscene nature of the subreddit that makes it more fun.
Of course, once it’s in the media, the general discussion starts. And boy, do people have things to say.
The only way to truly stick it to Wall Street is to use Bitcoin.
— The Chairman (@WSBChairman) February 1, 2021
Even before the WallStreetBets controversy, the user known as WSBChairman gladly took on the role of representing WSB on Twitter. They were among the first to bring crypto to the movement’s attention. And now, it seems that they have married the ideologies together: after all, Bitcoin and crypto started as a rebellion.
Fully agree. 👇 https://t.co/rW38zfLYGh
— Ted Cruz (@tedcruz) January 28, 2021
Now this is a bipartisanship you don’t see every day! Republican senator Ted Cruz and Democrat Alexandra Ocasio-Cortez couldn’t be more far apart on political ideas. However, the Robinhood controversy prompted all officials to come forward with the same statement: the market shouldn’t discriminate or favor.
No better way to get mega rekt than shorting bitcoin. Be our guest 🙂
— Adam Back (@adam3us) February 1, 2021
The CNBC headline implies that the next stop for short sellers would be Bitcoin. You would think that after what happened with WallStreetBets, shorting would become more discreet. Nope. If the news is true, we suggest grabbing a bucket of popcorn.
It’s nigh impossible for the whole Wall Street vs. WallStreetBets situation to happen in the crypto market. The crypto markets never stop, and the flow of cryptocurrencies is controlled only by those who own the private key. The growing interest of institutional investors also comes with the implication that whales will try to manipulate the market. However, this whole market is fundamentally different. Even if Wall Street tried to play with it like they’re used to, it definitely wouldn’t be the same story.