Populism Sweeps Wall Street

Author: Ben Mezrich, Source: Carbon Chain Value

For a long time, in the vast ocean of the stock market, retail investors seem to only be able to play the role of ‘small shrimps’. Facing the powerful ‘big crocodiles’ of Financial Institution, their existence is like suckers, born to be played for suckers.

However, a game-changing event in 2021, the “GameStop incident”, changed the rules of the game: individual investors in the US stock market united and successfully executed a short squeeze on Wall Street’s big shorts, allowing professional financial institutions to taste the bitterness of failure.

In May 2024, Keith Gill, the man who once sparked the ‘WallStreetBets vs Wall Street’ battle, the ‘super retail investor’, will re-emerge after three years of silence. What kind of storm will he bring this time?

Let’s follow the famous narrative fiction writer Ben Mezrich to review the whole story of the ‘GameStop incident’ and understand the story behind how retail investor little shrimp counterattacked the Wall Street shorts.

Unity, retail investor counterattack

The story begins with a physical game product retailer called GameStop. This company, with a 35-year “long” history, once had more than 5500 stores under its name. As a well-known game company, it has been struggling under the impact of the internet and its own operational issues, causing its stock (GME) to fall to $4 per share at one point, earning it the nickname “junk stock.” However, even as the company declines, it still has its loyal fans.

As an American who grew up in the game station, Keith Gill loves it deeply. At the same time, as an amateur finance enthusiast, he has also conducted a lot of research reports and sincerely believes that the company has been seriously undervalued. In July 2019, this so-called ‘amateur enthusiast’ bought a large amount of GME with enthusiasm. He not only bought it himself but also wrote lengthy posts on the WSB (WallStreetBets) forum, attaching his own research reports and account screenshots. In addition, he opened a YouTube account under the name ‘Roaring Kitty’ and recorded financial popular science videos in the basement of the rented house late at night.

Keith is not fighting alone. In 2020, Ryan Cohen, an e-commerce genius who once disrupted the pet retail market, also bought a large amount of GME, prompting its stock price to rise. This also gave Keith great confidence. He began to use the ‘YOLO’ strategy (betting as much as possible on a company’s stock), investing his life savings in GME. The videos posted on YouTube also changed from a few minutes to live streams lasting several hours, discussing GME in depth and promoting GameStop’s stock to people.

Soon, the retail investors gathered on the WSB forum and flocked to watch his live stream. The number of viewers increased, and discussions in the comments became livelier. For ordinary people struggling in life, earning substantial profits through stocks is a dream for many. Keith’s screenshot posted on the forum shows that he made over $100,000 in profits with just $5,300 as his initial capital. The retail investors started to become restless.

Single mothers raising two children alone, naive college students about to graduate, expectant mothers whose plans have been disrupted by the epidemic… Countless ordinary people like them began to buy GME under Keith’s call. Perhaps initially it was to profit and change their own plight, but as the situation gradually escalated, it was no longer just about a stock. The grim situation of the 2008 financial crisis is still vivid. The greed of financial giants and institutions left countless American families in ruins, while they continued to live in luxury with government assistance. The “GameStop event” is an adventure and a declaration for retail investors to fight for themselves, for their class, and for a better life.

Because the big shorters are clamoring.

Wall Street: Everything in control

The Wall Street shorts of Short Game Station are led by Melvin Capital. Yes, this well-established fund company has been targeting Game Station since its inception in 2014 and has always been committed to making it short for high profits. Its founder, Gab · Plotkin, is one of Wall Street’s most powerful financial industry practitioners, having worked for Steve · Cohen’s Syck Capital Advisors. In his opinion, Short is a company that is very reasonable and “within all the rules of the financial system”, so even if they sell 140% of GameStation stock, they can still say that they are not manipulating the stock.

Indeed, for the Wall Street giants, in the financial field, they are the rules themselves. So they are confident and arrogant. The well-known Citron Research even tweeted that they would live broadcast and publicly call retail investors ‘fools’, and threatened to ‘We understand short positions better than you, we will explain’. As a result, they were fiercely attacked by retail investors and had to cancel the live broadcast.

Castle Investment, a Wall Street giant, also suffered losses in this short squeeze war. But obviously, these Wall Street financial giants will do everything in their power through nepotism and cheating to prevent the rebellion of retail investors, such as closing the WSB forum that retail investors use to communicate with each other, and manipulating Robinhood, the software used by retail investors to buy and sell stocks, so that they can only sell but not buy. Thus, an epic short squeeze had to come to an end.

As Ken Griffin, CEO of Castle Investment, said, ‘Rules are not meant to protect people, they are meant to protect the system.’ And once you become part of this system, the rules will protect you.

Elon Musk is indignant

As a capital giant, Elon Musk, founder of TSL (TSLA.O), has a different stance from Wall Street. This is because TSL was ambushed by Wall Street shorts as early as 2012. At that time, these shorts used their positions, negative news coverage, and agitation of public anxiety to suppress TSL’s stock price, intending to take a bite of this fat. However, Musk and TSL survived. So, like the netizens on the WSB forum, he has also experienced shorting and deeply hates shorts.

The accumulation of past grievances, Musk became angry and united with WSB netizens in the same cause, intentionally misspelling the game store GameStop as ‘Gamestonk!!’ in a tweet (American stock investors are accustomed to using ‘Stonk’ to describe incorrect, exaggerated, or humorous investment decisions, such as buying high and selling low on a certain stock), and attaching the address of the WSB forum to the tweet, pushing it to his 42 million followers, causing a public opinion explosion.

The game between retail investors and Wall Street has escalated to a white-hot level, and the price of GME has been like a roller coaster, fluctuating up and down. The bears once thought they had the upper hand, after all, ‘we are professionals’; while retail investors also unite, determined not to repeat the 2008 bankruptcy while Financial Institutions remain unscathed.

The result of the tug-of-war is that the GME price is like a roller coaster, with a low of $8 per share and a high of $483 per share at one point, causing Melvin Capital to bleed and withdraw from the battlefield; then Wall Street giants join forces to take a series of actions, including banning retail investors from buying stocks, restricting forum posts, etc., causing the GME stock price to fall back to $325 per share. On February 4, 2021, the stock price even fell to $54 per share.

This widely watched epic short squeeze eventually caught the attention of the US Congress, and many people involved in the matter were asked to attend a congressional hearing to defend themselves. After a tense and exciting game, only sighs were left.

To be continued

After three years, on May 13, 2024, Keith Gill tweeted again, with over 6 million views in 5 hours and over 7,000 comments in 10 hours! The GameStop stock rose significantly after the market opened that day, rising over 110% in half an hour and triggering 6 circuit breakers during trading.

On June 2nd, Keith Gill posted on the WSB forum, screenshot showed that he had bought 5 million shares of GameStop at a price of $21.27 per share, with a total value of up to $115.7 million. Will the return of the super retail investor cause a new storm in the stock market?

Populism Sweeps Wall Street

Author: Yan Yi, Postdoctoral Research Mobile Station of the Institute of Finance, People’s Bank of China

“Even the smallest forces, in solidarity, can shake the wheel of the market.”

In early 2021, in that winter that will eventually be remembered by history, a financial storm called the ‘retail investor vs. institution’ swept the world, followed by an unexpectedly gripping movie adaptation story about the GameStop incident. However, the truth behind it and the emotions it unleashed are far more complex than the surface ‘farce’.

The protagonist of the event is not the traditional retail investor, but a group of investors from different states in the United States with different professions, ages, and backgrounds. Among them, some are young college students with curiosity and dreams about the financial world; others are experienced investment veterans who are accustomed to the fluctuations in the market. However, this time, they have come together because of a common belief - to challenge the seemingly invincible Financial Institutions.

In fact, behind this battle, there are not a few institutional investors. They cleverly disguise themselves as retail investors, using their huge capital advantage and asymmetric information to maximize their own interests in this game. However, when the storm is widely spread outside as “retail investors vs. institutions”, people are more attracted by the spirit of perseverance and the courage to challenge authority.

This spirit is like a clear stream, penetrating the iron wall of the financial market, inspiring a global resonance among spectators. In the traditional field of finance dominated by major players, the participation of the public always seems so weak.

Since the 2008 financial crisis, as ordinary people have gained a deeper understanding of Wall Street’s manipulation methods, they have become increasingly angry at the complex trading strategies and discriminatory terms, but often feel powerless to change them. However, the emergence of the GameStop incident seems to have opened a window for them, allowing them to see the possibility of confronting institutions directly.

In this battle, retail investors are no longer bystanders. They harness the power of social media, coordinate actions, and move together. They study the market, analyze data, and although the process is difficult, the sense of accomplishment and joy outweighs all fatigue whenever they see institutions suffer heavy losses because of their efforts. What’s more important is that they have proven that even the smallest force, when united, can shake the market giant wheel.

The Game Station incident is not just a battle of money and power, but also a hymn to belief, courage, and unity. It tells the world that in this uncertain world, as long as there is love, dreams, and persistence in our hearts, nothing is impossible. And this spirit will always inspire future generations, allowing them to continue their own hero’s journey in their respective fields.

In the highly interconnected world today, the dissemination of knowledge is no longer limited by geography and time. The sharing of professional skills has become unprecedentedly convenient, paving the way to success for countless dream pursuers. It is in this context that the internet brokerage Robinhood has emerged like a brilliant new star, illuminating the sky of the financial field and quietly rewriting the rules of finance.

The birth of Robinhood comes with an almost revolutionary ideal - “to democratize financial operations.” It abandons the cumbersome intermediary process in the TradFi system, directly connecting retail investors with the market, vowing to break the old order of “middlemen profiting from the spread.” From its name, one can catch a glimpse of the ambitious spirit of “robbing the rich to help the poor.” The founder of Robinhood once declared loudly on Twitter: “We want everyone to be able to trade, regardless of wealth.” This statement, like a breath of fresh air, dispels the gloom in the hearts of retail investors and ignites their passion to participate in the financial markets.

With the rise of Robinhood, a ‘people’s revolution’ in the financial world is quietly emerging. Many securities traders have felt the pressure and followed suit by launching commission-free trading platforms. The drop threshold allows more ordinary people to enter the stock market, an area that was once inaccessible. In no time, the group of retail investors in the United States has grown rapidly. They enter the market with a desire for wealth and a longing for freedom, becoming an undeniable force.

And in this wave of revolution, the Wallstreetbets forum has become a spiritual home for retail investors. Despite the various posts here, from spam to Depth analysis, it is precisely this mixture of fish and dragons that breeds infinite possibilities. The forum is not without experienced financial analysts who have crawled and rolled on Wall Street, and they anonymously express their opinions, share strategies, and use their professional knowledge to guide the collective actions of retail investors. When groups of retail investors buy or sell in the stock market based on these strategies, they actually influence and even determine the market trends, which undoubtedly poses a powerful challenge to the authority of TradFi.

As the information gap gradually narrows, individual investors are no longer passive recipients, but are taking the initiative to fight against the once dominant Financial Institutions with their wisdom and unity. These institutions, who once relied on scale and favorable terms to dominate the market, are now facing unprecedented challenges. Those who once felt hopeless about the financial market have now transformed into a member of the army of free investors. They not only have professional knowledge, but also understand how to use the power of the Social Web to communicate information and coordinate strategies with high efficiency.

The Game Station incident was the culmination of this “retail investor revolution”. Retail investors, driven by their frustration with institutional exploitation and their desire for freedom, have pushed the stock price of GameStation to unprecedented heights. They knew that the battle would not necessarily be won, but they knew better that it was already a victory to be able to create some chaos for the financial institutions that had long profited at their expense. When GameStation’s stock price finally retreated, and the laws of the market once again showed its irresistible power, many retail investors lost a lot, but their hearts were full of pride and satisfaction. Because they have proven that the belief that “retail investors can stand up to financial authority” is like a spark that is deeply rooted in their hearts.

Although the GameStop incident has come to an end, its impact has far from dissipated. It is not only a fierce competition between two unequal forces in the financial market, but also a victory for faith, courage and unity. For retail investors who participated in it, they not only experienced the stock market for the first time, but also validated their own value and challenged authority. For Wall Street, this war undoubtedly sounded a fierce alarm, reminding institutions to face the power of retail investors and re-examine the rules of the game. In the days to come, no matter how the market changes, the possibility of qualitative change demonstrated by the GameStop war may inspire more people to move forward bravely and explore the infinite possibilities in the financial field.

In the vast and turbulent sea of the financial market, every major event is like a huge wave, not only impacting the calmness of the market, but also profoundly affecting the fate of every participant. From a series of financial events, we can easily see that the issues that the market should reflect on are far more than simple superficial ones, but should reach deeper into the aspects of market fairness, rule-making, Risk Management, etc.

First, the discriminatory clauses of the US Securities and Exchange Commission and securities firms towards retail investors and institutional investors are like an insurmountable gap, hindering the healthy development of the market. The existence of these clauses not only exacerbates the inequality in the market, but also makes it extremely difficult for retail investors to move forward under the dual pressures of information asymmetry and unfair rules. Therefore, how to scientifically and reasonably define and adjust these clauses to ensure that all investors can compete fairly under the same rules has become an important issue that urgently needs to be addressed in the current market. This requires a reexamination of the existing regulatory framework, strengthening regulatory efforts, and encouraging market participants to consciously abide by the rules, jointly safeguarding the fairness and justice of the market.

Secondly, maintaining market fairness is not just about adjusting rules, but also requires the establishment of a complete Risk Management mechanism to prevent extreme situations like the “brokerage flipping the table” from happening again. The Game Station incident exposed the market’s vulnerability in some aspects, and also made us realize profoundly that only through efforts such as strengthening supervision, improving market transparency, and perfecting emergency response mechanisms can we effectively reduce market risk and ensure the stable operation of the market.

Once again, let’s take a look at the shorting mechanism in the Capital Market. Allowing shorting of more than 100% of the stock Market Cap, while to some extent enhances the market’s Liquidity and efficiency, it also provides a breeding ground for malicious shorting. How to effectively manage the risk of malicious shorting of listed companies while maintaining market vitality will be a common challenge for market participants. This requires the establishment of a sound shorting regulatory system, strengthening monitoring and punishment of shorting behavior, and guiding market participants to establish the correct investment philosophy, jointly safeguarding the healthy development of the market.

In addition, with the gradual rise of retail investor strength, how to prevent possible chaotic situations in the market environment where retail investors confront institutions has also become a problem that we need to ponder. This requires, on the one hand, to strengthen investor education and enhance the professional ability of retail investors; on the other hand, to guide institutional investors to play a positive role, strengthen communication and exchanges with retail investors by providing high-quality investment services, and jointly build a harmonious and stable market environment.

Finally, when the wave of ‘populism’ finally reaches the financial market, the traditional game rules of Wall Street have become difficult to adapt to the new market situation. Whether the financial market can withstand the impact of this transformation depends on whether it can adjust the game rules in a timely manner and adapt to market changes. This requires us to maintain an open mindset, a spirit of innovation, and a firm determination to jointly promote the sustainable and healthy development of the financial market.

In short, from the Game Station incident, we can see that the development of the financial market is not a smooth journey, but a complex process full of challenges and opportunities. Only through profound reflection, proactive response, and continuous innovation can we steadily move forward in this vast and turbulent sea.