In January alone, GameStop’s stock rose to over 600% following a rift between short-sellers and users on Reddit’s famous “WallStreetBets” forum. This action even drew the attention of famous billionaire Elon Musk who tweeted “Gamestonk!!” and linking back to WallStreetBets to his Twitter followers. But how could this skyrocketed rise in GameStop help the cryptocurrency community at large? Find out below as we discuss how this GME saga will help the cryptocurrency world.
What is GameStop (GME)?
GameStop is a video game retailer listed on the New York Stock Exchange. Its stock skyrocketed more than 1000% in January after some set of investors on Reddit continued to support the stock even when most Wall Street investors saw the stock as something that is overvalued and due for a sharp fall.
The recent rise in the shares of GameStop has been a source of concern. The GameStop’s stock skyrocketed to nearly 700% in just five trading days on the 27th of last month, only to fall 44% one day later. Then on 29th, the GME shares rebounded to rally more than 50% on that day alone.
What could be the reason behind that? Investors think that they have discovered a slip that a few fund managers made. Precisely, these huge investors mutually forced these funds to buy the stock by creating what is known as a “short squeeze.”
This price volatility that has been on a rampage since last week (to this week) is worth looking into for some reasons- this is due to the fact that the price speculation is a huge source of concern to most investors.
What is a short squeeze?
To understand what short squeeze means, you need to understand what it means to sell a stock “short” or short a stock (sometimes called shorting)—shorting entails selling high and then buying low. It is one of the things that motivates all investors. The variation is simply the sequence. For example, short-sellers sell a stock they have borrowed (paid a small borrowing fee) in the hope of what they suspect will be a significant price drop, and then they purchase the stock back later at a lower price and return it to the borrower.
This practice is currently legal. However, it is not advisable because the practice leads to various price manipulation, which is generally illegal. Considerable hedge funds did this very thing in a big way with GameStop stock for the past few months. Notable names that were associated with the withholding of millions of shorted shares of GameStop while heading into last week are Melvin Capital, Steve Cohen’s Point72, etc.
Impact of GME Saga on Bitcoin
In an interview with Bloomberg, Scaramucci said that small retail trading groups’ impact showed the power of decentralized finance – the very same idea that underpins Bitcoin.
According to him, money management, which was once seen as limited to a concentrated group of highly paid advisors, is being “democratized” through smartphones and low-cost online trading.
He went further, saying that the recent activity in GameStop is more proof of concept that Bitcoin is going to work. How would you be able to beat that decentralized crowd? That to me is more affirmation about decentralized finance, he said.
The Reddit traders have feasted on the fast-rising of GameStop’s stock price after their online posts urged others to join the trade, which drove the retailer’s shares to more than 600% in just 10 days. According to data from S3 Partners, this action caused short sellers to lose over $5 billion against the stock this year.
But could this GME saga help the crypto world? Following the WallStreetBets saga last week, a significant number of the popular shares being fuelled by social media have started to tank in value. While the GameStop and AMC shares have dropped, several cryptocurrency advocates believe that the only way to stick to the bankers and wall street is to leverage digital assets like bitcoin.
Cryptocurrency, the only hope for the market
After the saga last week, cryptocurrency fans started telling WallStreetBets (WSB) participants that the primary battle will be fought with digital assets and securities that are on-chain. For instance, a popular Twitter account with the name “The chairman” (@wsbchairman) in a tweet on February 1 said, ” The only way to truly stick it to wall street is to use bitcoin.”
There are numerous reasons why crypto fans are telling WSB players that the real deal will be with the censorship-resistant cryptocurrencies. For example, they see the stock market game “rigged” for only the big players to win, which is not so with cryptocurrency.
Another user also tweeted, “Hearing so many reports of orders not going through for GME or AMC, even before circuit breakers, the brokers were up to funny business,” he went further to say, “The house will always find a way to screw you. Bitcoin is the last free market. Apply your pressure there @WallStreetBets.”
It is safe to say that people understand that the stock market game is heavily manipulated and that there are better avenues available today, one that can really change the financial system, which is cryptocurrency. While paper stocks and fiats are for short term games, cryptocurrency supporters believe that digital assets are the long game.
How GME saga will benefit cryptocurrency
There are numerous ways that this ongoing GME saga will benefit cryptocurrency at large. We will talk about a few of them.
Power to the People
In stock trading, too much power is allocated to hedge funds. This is very risky because of so many factors. Their use of leverage allows them to control more securities than they were simply buying long, which creates ripples on the market. Also, they use sophisticated derivatives to borrow money to make investments, and this can create a higher return in a good market and more significant loss in a bad market. As a result, the impact of any fall will be heavily seen. But cryptocurrency gives people the power to control their assets. The power is not given to a selected set of people who will do anything they wish at any time.
Cryptocurrency can define value just the way gold and dollar do. Blockchain makes the system more transparent than the traditional currency as every activity is recorded and traceable on the blockchain. If there are issues of corruption, people will lose trust in the cryptocurrency, and its value will fall. This is the system of transparency and accountability that is lacking in hedge funds.
Instability in Stock Market
The COVID-19 pandemic created a lot of issues in the stock market. To date, the stock market is yet to bounce back fully. This turmoil in the stock market has put fears in the minds of investors who are now looking at cryptocurrency as an alternative source of investment.
Chief among them was the different central bank policies during the pandemic shutdown. Different sets of analysts quoted macroeconomic instability, which came from the unchecked stimulus during the economic shutdown and low-interest rates, as a critical factor why investors are looking at putting their money into bitcoin. The cryptocurrency scarcity contrasts with the flurry of spending by central banks around the world. These monetary policies can affect the value of fiat currencies and lead to rampant inflation.
These monetary policies have created uncertainty in the stock market, leading to questions about market stability. Institutional investors adopted a risk on profile amid the economic environment marked by low-interest rates and fears of macroeconomic turbulence. In their search for an investable asset, they had to look back at bitcoin as an inflation hedge.
Upcoming Silver Shorts Will Hurt Hedge Funds
Silver broke above $30 an ounce for the first time since 2013 this week after an army of retailer traders stormed into the metal after betting billions of dollars on stocks last week., triggering financial risk of multi-asset melt-up in the global market. Just like a Twitter user lamented the adverse effect of the upcoming silver shorts on banks. This is due to the fact that a lot of banks hold short positions on silver, meaning they are betting the price would fall. So, retail investors appear to be trying to do what they did with GameStop, drive up silver prices to hurt the prominent market players. But this time, it is the banks that are targeted, whereas, in the GameStop saga, the individual investors targeted hedge funds.
Although the group behind the GameStop saga has denied their involvement in the rising price of silver, however, various online discussions have been on silver since last week. The majority of Reddit posts suggested that the higher prices of silver could hurt hedge funds with large short positions and that purchasing easy to access exchange-traded silver funds could skyrocket the metal’s value.
WSB and WSB guy / Reddit guys. Often chill crypto as well.
It is incredible that Reddit, an online chat community full of gamers, has driven the GameStop stock to an unbelievable level. Over the past week, a collective of individual traders on Reddit’s r/WallStreetBets community sent GameStop stock to an amazing height in an experiment to stick it to hedge funds, which has sold the stock short. GameStop, which was trading at $17 at the beginning of the year, saw its stock rise to $340, valuing the unprofitable company at more than $25 billion.
The irony of the whole thing is that these guys often chill crypto as well. The influence of Reddit’s r/Wallstreetbets subreddit has evidently been seen in the crypto space.
Just last week Friday, a new coin appeared at the top of CoinMarketCap’s ranking, which was seen as WallstreetBets (WSB). The new coin apparently gained more than 103% within 24 hours with a daily trade volume of $100 million.
WallStreetBets (WSB) on CMC. Source: CoinMarketCap
But the new coin seems to be the latest joke series played by the CoinMarketCap team because of the message on the coin page. On the coin page on CMC, the message below was seen;
“All UR MeMes R belong to us and Charmander-marth!!11. We seek alpha and master beta. Please note that this is a joke and no such asset exists. If you see similarly-named projects, please perform the requisite due diligence and do not ape in.”
Their citing of Charmander-marth links to a YouTube video featuring Social Capital CEO Chamath Palihapitiya. CNBC was interviewing him regarding his successful trading of GameStop stocks during the short-squeeze initiated by the r/Wallstreetbets subreddit. This goes to show how powerful the group is and the group’s popularity in the crypto space.
Robinhood Blocking Buys of GME Stocks
Free stock trading pioneer Robinhood restricted trading Thursday 28th January in GameStop and other stocks caught in the frenzy. This blocking points out the corruption and fraud going on and thus the need for real decentralization.
In cryptocurrency, decentralization is wholly accepted as one of the key value propositions of cryptocurrencies. In a decentralized world, game-theoretical incentives assume the role of a central, governing authority.
One of the reasons why there is a need for decentralization is that a decentralized network that is run and secured by thousands of computers worldwide can guarantee availability (which BTC has done). The failure of a computer doesn’t have any adverse effect on the overall network. Also, cryptocurrency like bitcoin is uniquely censorship resistant – because miners are not obliged not to include a transaction in a block. Even in a scenario where a miner decides to block a particular transaction, others would step in, include it in a block they mined and collect the transaction fee.
Another advantage of a decentralized system is its improved collision resistance. The coordination in a distributed network is more problematic than in a centralized one. Thus, this limits the chances that a group of individuals (like miners or r/Wallstreetbets) is able to control the network through selfish mining or detect the price of the coin.
What do you think about the latest GME saga? Drop your comments below?
Written by: Narender Charan