A war has broken out on wallstreet as investors from the r/WallStreetBets subreddit noticed that hedge funds were like Melvin Capital were short-selling GameStop stock ($GME) at an absurd rate of over 140%. The savvy internet investors noticed that the firms were buying more share of the company that actually existed, and if enough people purchased GameStop stock its value would rise and the firms would be forced to buy back the stock at the higher prices due to the time limit on their borrowing.
As word of this plan started to spread around the internet, more and more people purchased GameStop stock driving the value of the company up to $347 per share at closing on January 27th. At that value Melvin Capital can’t pay back their creditors and will go bankrupt. Representatives of various big hedge funding firms took to all the mainstream media outlets to make claims that the SEC should step in and halt trading and launch an investigation into the r/wallstreetbets subreddit. This has only further motivated people to buy more shares in the companies that the firms are trying to short-sell. Even celebrities like Elon Musk and Mia Khalifa have taken notice and posted on social media encouraging people to buy GameStop shares.
The establishment has struck back at the movement, with Discord banning the official chat for r/wallstreetbets, and Reddit cracking down on the subreddit. If this trend continues it is likely that the establishment will increase their efforts to deplatform and break up this movement so that they lose motivation and can’t coordinate future actions. The SEC has no reason to intervene right now, but if the firms continue with their pressure, and the internet community refused to back down, they may end up stepping in anyway and there may be investigations and perhaps even charges brought against r/wallstreetbets.
Firms have been taking advantage of short-selling companies to manipulate the markets for decades. With the advent of the internet and access to investing in financial markets becoming accessible to the average person the playing field has become a little more level. This historic event has opened the eyes of many regular people to the collective power that they can have to beat the hedge funds at their own game. At the very least this event has encouraged and inspired a lot of new people to get into investing in the stock market, and that is a good thing.