January saw brick-and-mortar video game retailer Gamestop (NYSE: GME) explode in value from a 2021 opening price of $19.00 to a peak of $483.00, a total expansion of more than 2,000 percent. GME closed out the month at $325.00.
The story for how it happened has become cemented in people’s minds: Reddit’s WallStreetBets organized a group of plebeian traders, harnessing the combined power of thousands of Robinhood apps to buy up the stock of an iconic gaming-related company to “stick it to the man” at a time when hedge funds were so ambitious as to be holding billion-dollar short positions at a price where it just didn’t make any sense.
According to a report by Fortune, S3 Partners analyzed that short-sellers had lost almost $20 billion by the end of the month. S3 also found that short positions as of the Friday, Jan. 29 market close were still sizable, to the tune of 113 percent of Gamestop’s float (number of tradable shares). S3 reported on Monday that the number had fallen to about 50 percent, while GME price fell nearly 31 percent to $226.16 by the close of Feb. 1.
Big Tech appeared to step in and censure retail traders for their actions. On Jan. 27, popular chat room platform Discord banned Reddit’s WallStreetBets, claiming the channel was using “hateful and discriminatory content after repeated warnings.” Discord reversed course a day later, claiming it had nothing to do with the Gamestop pump. On Thursday, Facebook banned a popular trading group unrelated to Reddit called Robinhood Stock Traders, claiming the group violated policies on “adult sexual exploitation.”
Brokerages Robinhood, Interactive Brokers, TD Ameritrade, and Charles Schwab all restricted purchases of Gamestop and other stocks with a similar, albeit less astronomic, price increase, such as Nokia, Blackberry, and AMC Thursday. Consumer sentiment and pundits alike decried the move, calling it central interventionism in the free market and protectionism of hedge funds like Melvin Capital, which lost 53 percent of its holdings in the short squeeze.
After Robinhood prevented its customers from purchasing GME, the once-popular trading app was flooded with negative reviews on GooglePlay, reducing its rating to one star out of five. Google intervened by deleting the negative reviews and thus restored Robinhood’s rating. Youtuber TheQuartering caught the deletion of approximately 94,000 reviews live on stream and noted that the tech giant had deleted his own review for the app.
By Friday, Clinton-era former Commissioner of the Security and Exchange Commission (SEC) Laura Unger compared Gamestop’s market activity to the Jan. 6 riots at the U.S. Capitol Building on CNBC: “It really puts a lot of questions about the integrity of the market, right? And it really, kind of, everybody’s scratching their heads over this … not unlike what we saw on Jan. 6 at the Capitol, right?”
Unger also stated that some form of policing is required in the markets to supposedly protect them from retail traders joining forces to buy stock in a video game retailer that never traded for more than $63.77 at prices in the triple digits: “If you don’t have the police in there at the right time, things go a little crazy,” she said.
“It’s financial harm, not personal bodily harm, but certainly that’s the same kind of, you know, the platform-created frenzy that people are operating under, and these are very trying times.”
Unger wasn’t the only one calling for a crackdown on the public. Sen. Elizabeth Warren (D-MA) wrote to the acting chair of the SEC, calling retail traders a “flash mob with money,” citing 21 articles by far-left mainstream media outlets such as The New York Times, The Washington Post, VOX, and The Wall Street Journal to support her description.
Sen. Warren seemed concerned about the well-being of hedge funds like Melvin as professionals apparently fell victim, eyes wide shut, to Redditors organizing in plain sight for the entire world to see: “Hedge funds, such as Melvin Capital Management, have bet that GameStop’s shares would fall in the hopes of reaping substantial profits,” said Warren.
Sen. Warren seemed concerned about the well-being of hedge funds like Melvin as professionals apparently fell victim, eyes wide shut, to Redditors organizing in plain sight for the entire world to see.
“In recent weeks, however, share prices for GameStop began to rise, with a dramatic surge in recent days fueled not by any changes in the company’s economic fundamentals, but by anonymous traders on the Reddit forum r/WallStreetBets.”
Warren appeared incredulous that working-class traders may have profited from the mistakes of funds playing with fire on a multi-billion dollar short trade: “The public deserves clear answers about how federal regulators define market manipulation, how investors may have profited from potential manipulation, and what the SEC will do to mitigate these practices.”
Mainstream media’s narrative has similarly shifted. Monday, Associated Press released, through its newswire service, an article titled “Fight The Man: What GameStop’s surge says about online mobs,” which was heavily republished in major publications. The authors seem to take aim at the ability of common people to communicate and organize online: “The internet is shifting society’s balance of power in unanticipated ways,” says the article.
“And the same tools that empower the little guy — allowing people to organize quickly and seemingly out of nowhere, troll powerful institutions and unleash chaos — can also give rise to extremist mobs waging harassment campaigns or the Jan. 6 riot at the Capitol.”
The article also quoted MIT’s Director of Initiative on Digital Economy, Sinal Aral, attempting to parallel the Gamestop Rebellion to the Capitol Riots: “There’s an important distinction between an actor who is coordinating manipulation and a retail investor who gets caught up in the movement… We witnessed those two types of people in the Capitol riot as well.”
Over the weekend, silver bullion dealers reported major inventory outages amid skyrocketing demand. An email from APMEX Sunday night said: “Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.”
While Big media outlets attempted to pin silver as WallStreetBets’ next target, they failed to acknowledge the few calls to target silver that were made on the public forum were targeting the iShares Silver Trust ETF (NYSE: SLV) stock and not the physical silver market. SLV is an Exchange Traded Fund that invests in physical silver, but whose stock trades on the open market like any other stock. An increase in the value of SLV will not lead to an increase in the global silver markets.
In a post with more than 32,000 upvotes on WallStreetBets, the community made it clear that it was not targeting silver, or even SLV, and was only focused on Gamestop.
The price of silver is also delivered primarily through futures contract trading, according to bullion dealer JMBullion: “A spot price is the fluctuating market price for an asset bought or sold on commodity exchanges contracted for immediate payment and delivery. The spot price of silver is determined by the forward month’s futures contract with the most volume. At times this contract can be the current month or it might be two or more months out in time.”
According to the Chicago Mercantile Exchange (CME), the March 21 Silver Futures Contract had a daily volume of 182,506 contracts traded. The contract size for this instrument is 5,000 troy ounces, meaning each contract’s trade is worth approximately $145,000 based on Monday’s prices of approximately US$29.00, making the daily volume in excess of $26.4 billion. The maintenance margin, the minimum amount of cash equity required for a trader to deposit to trade the instrument, is set at $14,000.
Not only are CME products unavailable on retail trading apps like Robinhood, according to PlexusMedia, the average retail investor’s total investment size is only $12,000 across all asset classes. Similarly, according to Barchart, Gamestop’s 5-day moving average price is $247.82 and volume has been 83,301,797, making its daily cash volume approximately $20.6 billion.
According to a June article by The Motley Fool, Robinhood has approximately 13 million users on paper, not all are actively trading, and most accounts are between $1,000 and $5,000 in size. “When you look at it from this perspective, it’s really tough to make the argument that Robinhood users have any real influence on the market,” says the article.