Imagine you are the proud owner of a publicly listed company, now what if because of no fault of your own, but rather some random world-wide pandemic landed up shutting the doors of your retail stores, forcing you to retrench staff and overhaul your entire business model?
To top off all this bad luck and stress, what if giant hedge funds decided that your business was going to fail and instead of giving you a helping hand, they simply laid siege to your stock with massive short positions?
Short positions are basically the act of selling a stock you don’t own and having the option to repurchase it at prevailing market prices at a later stage, the goal of the “investor” (I use that term loosely) is to buy back the stock as cheaply as possible and pocket the difference.
Short interest is the number of shares that have been sold short but have not yet been covered or closed out. Short interest, which can be expressed as a number or percentage, is an indicator of market sentiment.
Extremely high short interest shows investors are very pessimistic, potentially over-pessimistic. - investopedia.com
Now do you think other investors will touch a stock that is heavily laden with short interest? Likely not, which is exactly what has been happening to the GAMESTOP ($GME) share on Wallstreet. Melvin Capital (backed by Citadel) was one of the main culprits behind this move and to make matters worse for GME, they publicly advertised their short position and their reasons for doing so, like a big old self-pat on the back. The act of marketing a company as a losing stock worthy of being shorter is a killshot to say the least and should not be legal to take such a position and then turn it into a self-fulfilling prophecy via your own actions.
So if you have a competitor you want to trash, simply ring up your favourite hedge fund, get them to lay down some hefty short positions on your competitor’s stock, then call up your newsagent buddies and get them to run some press releases on this stock heading downward and why the “smart money” A.K.A your hedgie buddies are betting against it being successful, result = competitor growth neutralised!
The European Union has shown some gumption in this space and in some areas has banned short-selling to curb market bleeding in uncertain times. (Article)
There is still a long way to go, especially on Wallstreet where short-selling is rampant. Something similar happened to bitcoin in the 2017/2018 bubble, there was buying frenzy like no other and the price topped 20K in the euphoria of announcements of bitcoin futures being launched. It wasn’t long after short selling was available in the bitcoin futures market that FUD (Fear. Uncertainty. Death) type of media started surfacing, major countries like India, China etc started to issue statements of their plans to ban bitcoin and causing paper-hands to fold their bitcoin positions and crash the price.
I’ll bet the players speaking out against bitcoin and threatening regulation, were ass-deep in short positions, just waiting to capitalise on the fall of bitcoin and erode value for the retail players.
This time around, in 2021. we see a reversal in ‘pownage’ where hedge funds receive their just desserts. A group of Reddit users in a subreddit called wallstreetbets got together in unison and decided to “stick it to the man” and embarked on an aggressive crowdsourced alternative investing strategy to seek out stocks with high short interest and plow cash at them in a buying frenzy, many gambled their life savings in a YOLO (You Only Live Once) fashion with huge payoffs.
This movement saw the GAMESTOP stock rise several hundred percent from around a $12 price point early January to meteorically rise to approx $400 peak by the end of January. As a result Melvin Capital and Citadel lost billions of dollars in covering their shorts, what’s known as a short squeeze.
The retailers were gaining momentum, for them this was not just about gains, but about making a statement, this was personal, Millennials and Centennials were pouring in to rally together for a cause, for every missed opportunity in life that the generations before had denied them, this was their chance to tip the scales. Many of this younger generation had already been enriched by the recent gains in bitcoin and Ethereum, now had some funds to play with and when banded together they could make the markets move significantly, which is exactly what happened.
The hedge fund cronies didn’t take this lying down however, it is alleged that the concerns at the upstream clearing house of Robinhood, the ironically named neo-brokerage, caused Robinhood to suspend buy trades for the GME, AMC. NOK and a few other stocks that were targeted by the zealous retail hordes. Robinhood was the most popular trading platform for the wallstreetbets community because of its mobile accessibility. The suspension of trade allowed hedge funds to consolidate their positions while the retail traders took some losses on the ensuing price dip.
Again the corporate players have shown they can just change the rules to suit them, but the intrepid wallstreetbets horde, now several million strong in the Reddit group hunkered down and vowed to keep holding the line with what they term Diamond Hands (opposite of Paper Hands), holding stocks creates scarcity and takes shares off the table which are needed to close the hedge funds short positions, leaving them stuck in their shorts as the price rises.
Robinhood to a huge reputational beating, with social media comments ablaze with the hashtag #cancelrobinhood, Melvin capital and Citadel were not unscathed, with their logos and executives faces plastered all over memes of all types.
The GAMESTOP mania has reached such heights that it reached Tesla’s Elon Musk. a kindred rebel at heart. who Tweeted several statements in support of GAMESTONKS (a play on words incorporating a slang word for stocks) and even bitcoin.
Prominent members of the bitcoin and crypto community have come out in support of the Wallstreetbets (WSB) initiative, seeing crypto community aide flood into the battlefield. The Bittrex crypto exchange capitalised on this movement and issued tokenized stocks of these hot shares, which can be traded 24/7 without waiting for the markets to open.
This is just the beginning, WSB is hunkering down on GME and AMC, with new members joining the ranks everyday, even MGM studios is reported to be eyeing out a Hollywood movie featuring GAMESTOP. There are calls to decentralise traditional stock trading through the creation of decentralised exchanges to replace traditional “old money” controlled exchanges.
2021 could not have started off more exciting, for the first time Netflix didn’t capture my interest, as I followed the crazy events that ensued. I even ordered a “GAMESTOCK - Power to the People” t-shirt from Redbubble and opened an account with a brokerage to get in on the action.
On independence day 2020, I co-founded the social media blockchain called Blurt, with the vision to empower authors to freely share their content without prejudice and to earn crypto for their content contributions, the GAMESTOP story weighs close to my heart because Blurt suffered many launch trials that hindered its growth to date, from spammers bloating our blockchain with repetitive dick-picks, to social engineered attacks on founders’ reputations and finally an exploit of a fee free transaction to further spam and bloat the chain while we were in the mids of rolling out a decentralised mesh of Raspberry pi nodes to reduce dependency on mainstream datacenters.
WSB gives me hope that one day things will turn around for Blurt, I personally don’t want to shill Blurt to WSB because it will divide their focus from their current mission, I do however encourage the Blurt community to support WSB and openly discuss and bring about awareness to their movement, I will mobilise the @blurtmob curation account to vote for good content and thereby rewarding users that make use of the #wallstreetbets tag.
Let’s not look for handouts, but rather play a supporting role in this epic once in a lifetime movement! GO GO GO BLURT!