The GameStop revolution: How WallStreetBets took on Wall Street.

GameStop and WallStreetBets: The rise of retail investors and the rebellion against Wall Street

In early 2021, the financial world witnessed an unprecedented event that shook the foundations of Wall Street. What began as a grassroots movement on the Reddit forum r/WallStreetBets turned into a global phenomenon. The movement was fuelled by retail investors who saw an opportunity to not only make money but also challenge the traditional powers of Wall Street. This movement coalesced around one unlikely stock: GameStop (GME).

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The beginning: GameStop’s struggles

GameStop, a brick-and-mortar video game retailer, had been struggling for years. With the rise of digital game distribution and e-commerce giants, many considered GameStop a relic of the past. In fact, by the time the COVID-19 pandemic hit in 2020, the company was widely viewed as a company in decline. It had reported years of declining revenue, was closing stores globally, and had no clear path forward in a rapidly changing industry.

This view was shared by large hedge funds, such as Melvin Capital, which heavily shorted GameStop’s stock. Short selling is a practice where investors borrow shares of a company, sell them, and hope to buy them back at a lower price, profiting from the difference. Essentially, hedge funds bet against GameStop’s future by assuming its stock price would continue to fall.

Enter WallStreetBets: The retail investor revolution

WallStreetBets, a subreddit focussed on high-risk trading, became the unlikely force behind one of the biggest short squeezes in history. The users on this forum, who call themselves “degenerates”, are known for making risky financial bets, often using humour and memes to talk about their strategies. One user, known as Roaring Kitty (real name Keith Gill), saw potential in GameStop as an undervalued stock. He argued that the company could have a future with the upcoming release of new gaming consoles and the potential shift to e-commerce.

What made this thesis powerful was the massive short interest in GameStop. Around 140% of the available shares were shorted, meaning hedge funds were heavily betting against it. This created the perfect setup for a short squeeze: if the price of GameStop’s stock started rising, short sellers would be forced to buy back the stock to cover their losses, which would push the price even higher.

In January 2021, members of WallStreetBets took action. They began buying GameStop shares en masse, using platforms like Robinhood to make the process easier. As more people bought the stock, its price skyrocketed—from under US$20 in early January to over US$400 at its peak later that month.

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The GameStop frenzy: A global phenomenon

The dramatic rise in GameStop’s stock price caught the attention of mainstream media and social media alike. For a brief moment, WallStreetBets users became heroes to many, seen as “David” taking on the Wall Street “Goliaths”. Hedge funds, particularly Melvin Capital, suffered billions in losses as they scrambled to cover their short positions. Retail investors saw their small investments grow exponentially, and a sense of rebellion against the traditional financial elite spread online.

However, the situation escalated quickly. On January 28, 2021, trading platforms like Robinhood restricted the purchase of GameStop shares, allowing only the sale of existing positions. This action caused an outcry among retail investors, who believed they were being deliberately stopped from continuing their trading frenzy.

Robinhood justified the move by citing liquidity issues and the need to meet deposit requirements set by clearinghouses due to the volatility. Nevertheless, accusations of market manipulation and collusion between Robinhood and hedge funds spread rapidly.

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Fallout and congressional hearings

Following the restrictions, the price of GameStop’s stock began to fall, though not without continuing to experience massive swings in the weeks that followed. Robinhood faced lawsuits, and the US Congress held hearings in February 2021 to investigate what had happened.

CEO of Robinhood, Vlad Tenev, along with other key players like Keith Gill and executives from hedge funds, testified. The hearings raised important questions about the fairness of the stock market, market manipulation, and the role of retail investors.

Despite the controversy, many members of WallStreetBets refused to sell their shares. They believed in what they called “diamond hands”—holding onto their GameStop shares despite the pressure to sell. The mantra of “hold the line” became a rallying cry for those who saw their investment not just as a way to make money, but as a statement against Wall Street’s perceived corruption.

Ryan Cohen: The saviour of GameStop?

Amid the chaos, Ryan Cohen, co-founder of pet-supply company Chewy, emerged as a key figure in GameStop’s future. He had taken a significant stake in the company and joined its board of directors. Investors began to see Cohen as the man who could turn GameStop into a thriving e-commerce brand, a transformation similar to what he had done with Chewy.

By 2021, Cohen had become chairman of GameStop’s board, and under his leadership, the company began its shift toward becoming a more digitally focussed business. However, the company’s long-term profitability remained uncertain, even as Cohen became a cult-like figure among GameStop investors, who believed he would lead them to victory against Wall Street.

The aftermath: What happened to WallStreetBets?

In the aftermath of the GameStop short squeeze, WallStreetBets grew from a relatively obscure subreddit to a mainstream financial movement. At its height, the forum boasted millions of new members and received intense scrutiny from both financial regulators and media outlets.

However, the events surrounding GameStop led to internal friction within WallStreetBets. The moderators struggled to manage the influx of new users, and discussions around GameStop began to dominate the conversation, overshadowing the forum’s original spirit of risky, unconventional bets. Some longtime members accused the new crowd of turning the subreddit into a one-stock echo chamber, while others left to form more specialised forums like Superstonk, which focussed entirely on GameStop.

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GameStop today: A lingering legacy

Nearly three years after the events of January 2021, GameStop continues to be a highly discussed stock among retail investors. While the stock price has stabilised far below its peak, it remains elevated compared to its pre-squeeze levels. Ryan Cohen continues to lead the company, with efforts underway to transition GameStop from a traditional retailer into a digital powerhouse, though the company’s financial results remain mixed.

Many of the retail investors who joined the GameStop movement still believe in what they call the “mother of all short squeezes” (MOASS). They argue that the short sellers never fully covered their positions and that a new short squeeze could still be on the horizon. These investors, often referred to as “Apes”, have held onto their shares for nearly three years, refusing to sell despite the market’s ups and downs.

Broader impact: The democratisation of Investing

The GameStop saga has left a lasting impact on Wall Street and retail investing. It demonstrated the power of social media in organising and amplifying collective action, showing that retail investors could disrupt traditional financial institutions. Moreover, it sparked widespread interest in investing, especially among younger generations, and led to debates about market fairness, transparency, and the role of technology in finance.

In the aftermath, trading platforms like Robinhood have seen increased regulation and scrutiny, and the SEC is exploring reforms to make the market more transparent and accessible for retail investors. The event also highlighted the risks associated with speculative trading and the potential dangers of market manipulation, both from hedge funds and trading platforms.

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The Legacy of WallStreetBets and GameStop

The GameStop short squeeze of 2021 was a historic moment that revealed deep-seated frustrations with Wall Street’s structure and the role of hedge funds in manipulating stock prices. While GameStop may no longer dominate headlines as it once did, the movement it inspired lives on. WallStreetBets became a symbol of the democratisation of finance, giving everyday investors a voice in a system that had long been dominated by the wealthy and powerful.

Whether or not GameStop’s future turns into the e-commerce success Ryan Cohen envisions, the stock’s place in history is cemented. The power of social media to shape markets, coupled with the determination of retail investors, has forever altered the relationship between Wall Street and Main Street.

Why look beyond Robinhood?

While Robinhood has become synonymous with commission-free trading and is widely used by millennials for its user-friendly design, this platform has been criticised for its controversial business model and potential risks during volatile market conditions.

The GameStop incident exposed flaws in Robinhood’s infrastructure, which could not handle the unprecedented trading volume. It also highlighted the lack of transparency and the company’s dependence on a “payment for order flow” (PFOF) model. In short, Robinhood profits from routing trades through market makers rather than directly executing them, which raises concerns about whether users are getting the best possible prices.

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Enter Acorns: A simpler alternative for the long-term investor

For those looking for an alternative to Robinhood, especially after the events surrounding GameStop, Acorns presents an option with a different approach to investing. Whereas Robinhood appeals to active traders and those looking for quick wins, Acorns caters to the hands-off, long-term investor. It focusses on micro-investing and saving by rounding up everyday purchases and automatically investing the spare change into diversified portfolios. Here’s how Acorns compares to Robinhood:

Feature	Robinhood	Acorns
Target audience	Active traders, stock and crypto investors	Passive, beginner investors, and savers
Commission fees	Commission-free trades, but with PFOF	Subscription-based, starting at $3 per month
Investment options	Stocks, ETFs, options, crypto	ETFs, retirement accounts (IRA), Acorns Later
Trading style	Day trading, options, and crypto trading	Micro-investing, long-term investing strategies
User experience	Real-time trading with risks of high volatility	Round-ups and automatic deposits, more stable over time
Educational tools	Some basic financial education	Comprehensive educational resources

Acorns for passive, long-term investors

Acorns operates on a fundamentally different model compared to Robinhood. Instead of encouraging frequent trades, Acorns automates the investment process. It allows users to start with as little as $5 and slowly build wealth through small but consistent investments. This makes Acorns particularly appealing to individuals who are new to investing or those who prefer to “set it and forget it”.

Additionally, Acorns offers tools like Acorns Later and Acorns Early that help with retirement planning and custodial accounts for children. This approach contrasts with Robinhood’s focus on real-time, high-risk trading, which requires constant monitoring to avoid potential losses (Wallstreet Bets).

Trading platforms and long-term stability

The GameStop event underscored the need for platforms that are not only responsive but also stable during volatile market conditions. Robinhood, while popular for its easy entry into trading, is not always the most reliable for long-term wealth-building strategies.

For those disillusioned by Robinhood’s actions or looking for a less speculative form of investing, Acorns presents a solid alternative, particularly for users more interested in building sustainable wealth rather than engaging in speculative day trading.

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Final thoughts

Social media’s power over Wall Street has reshaped how we view and engage with markets. While Robinhood played a crucial role in democratising access to trading during the GameStop surge, its flaws were laid bare in the process. Acorns offers a compelling alternative for those who prefer a long-term investment strategy and stability over the thrill of day trading.

Whether you’re an investor looking for a new platform after the Robinhood controversy or simply exploring ways to build wealth steadily, it’s essential to evaluate platforms based on your financial goals. The next time a viral movement like GameStop arises, having a solid investment foundation could make all the difference.