GameStop saga (2021)

Geschichteab 9 J.

When Reddit users brought hedge funds to their knees: small investors drove GameStop shares from $20 to over $400 – and short sellers lost billions.

The GameStop saga of January 2021 was an unprecedented battle between small investors and Wall Street hedge funds.

The story: hedge funds had massively short-sold the shares of the video game chain GameStop – betting on its demise. Users of the Reddit forum r/WallStreetBets spotted the opportunity: if enough people bought the share, the hedge funds would have to close their short positions and buy back shares at high prices ("short squeeze").

What happened: the price shot up from approx. $20 to over $400 within a few weeks. The hedge fund Melvin Capital lost over 6 billion dollars and had to be bailed out.

The controversy: the broker Robinhood temporarily stopped purchases of GameStop shares – which caused outrage. Was it market manipulation? The SEC (US securities regulator) investigated the case.

Lesson: social media can move markets. But: many late buyers lost a lot of money when the price fell again.

Did you know? Keith Gill aka “Roaring Kitty” was one of the first to call for buying GameStop on Reddit. His investment of about $50,000 was at one point worth more than $48 million.

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