WallStreetBets are Hoping for Another GameStop Boom and it's All Down to NFTs by@pwsyme

WallStreetBets are Hoping for Another GameStop Boom and it's All Down to NFTs

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Pete Syme

Still trying to understand crypto. NFT sceptic. MA Journalism student

In December 2020, a $20 stock degraded as “the next Blockbuster” by venture capitalists was rapidly garnering the enthusiasm of retail investors. Normal people invested their savings behind GameStop, betting that it would go the opposite direction that financial big guns were saying. The now infamous subreddit r/wallstreetbets was awash with ‘due diligence’ posts, advising readers of the potential for a huge short squeeze. Within a month, $GME went up 24-fold before broker intervention put it back down again. One year on, the same community is pushing for another GameStop boom, and it’s all thanks to NFTs.

The January 2021 short squeeze quickly gathered the world’s attention as it made headlines across the globe. Those who had never cared about stocks before were getting involved as $GME left the confines of business sections for front pages. Hedge funds like Melvin Capital had bet the brick-and-mortar company would soon go bankrupt, putting millions of dollars into short selling to the extent that 140 percent of $GME’s public float had been sold short.

The narrative soon became one of the underdogs fighting back against the powers above, with many on Reddit sharing stories of financial loss during the 2008 crisis as a motive for revenge. The theory was that the short sellers would soon have to cover their positions, with r/wallstreetbets posters claiming that the stock’s price would reach four figures and Wall Street would be in flames.

Fresh out of a New Year’s Resolution to learn more about finance, I stumbled across the GameStop hype and bought a few shares around the $20 mark. But the mainstream narrative that it was nothing more than a ‘meme stock’ undervalues the analysis that members of the subreddit put in. There is a reason that the stock has fluctuated around $150-200 even since the hype died down. The boom was driven by a will to prove the obstinate venture capitalists wrong, but what was underreported was the impact of new Chairman Ryan Cohen.

The 35-year-old first made his mark as CEO of Chewy, an e-commerce business specialising in pet food which he co-founded in 2011. After six years, Chewy was bought by PetSmart for $3.35 billion – the largest ever e-commerce acquisition at the time.

As Cohen turned his sights to investing, his involvement in GameStop started to turn heads. Rumours that he would lead the brick-and-mortar business to transition to e-commerce were also much spoken about.

Keith Gill, who goes by Roaring Kitty on YouTube or u/DeepF***ingValue on WallStreetBets, was the most prominent success story to come out of the short squeeze. He first invested in GameStop when it was just $5, proposing that it was wildly undervalued. Some may have seen it as nothing more than a meme – see Elon Musk’s “Gamestonk” tweet – but others had done rigorous research before choosing to get involved. As Gill told The Wall Street Journal: “I wasn't a rabble-rouser out to take on the establishment, just someone who believes investors can find value in unloved stocks.”

In more recent weeks, r/WallStreetBets has been alight with memes imagining a second boom as GameStop is linked with plans to develop an NFT marketplace. The short squeeze faltered when brokerage Robinhood stopped investors from trading GameStop shares, so it makes sense that those who felt betrayed by the commission-free system would turn to the blockchain in hopes of avoiding the undue influence of vast financial powers.

The app makes almost half its revenue from payment for order flow – receiving compensation from a market maker for routing trades through them. One such market maker in Robinhood’s case was Citadel, who also have a vested interest in Melvin Capital – the target of much WallStreetBets ire during the squeeze. Payment for order flow is a system controversially endorsed by one Bernie Madoff, and is highly regulated in Europe while banned in Canada and the United Kingdom.

The congressional hearing has not led to any action against alleged market manipulation, and the blockchain may provide a hopeful alternative because it is decentralised.

NFTs have so far proven wildly popular yet also controversial – GameStop went up 17 percent when its involvement was first announced, but any idea of a second boom is missing. Optimism for the underdog was rife during the short squeeze, and it was a highly exciting thing to be a part of as a stock I gambled on later made front pages across the world.

But as it faltered and allegations of market manipulation reached government voices, it became apparent that the hedge funds would always win. Decentralised currencies and NFTs may appear a hopeful alternative, but it seems unlikely GameStop can capitalise.