First GameStop, Now AMC: Reddit Takes Aim at Wall Street​
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First GameStop, Now AMC: Reddit Takes Aim at Wall Street​

An unlikely sort of coup is currently taking place on Wall Street. Reddit users have been buying up stock in failing companies like GameStop and AMC Theaters en masse, driving up the price to record levels and costing hedge funds millions of dollars in the process.

Spurred on by the Reddit board r/wallstreetbets, amateur traders flocked last Friday to the physical video game retailer, which had been struggling like many businesses during the pandemic, and drove the value of GameStop stock up by 69%. This triggered an automatic halt in trading and ended yesterday up by roughly 90% with the stock expected to continue soaring.

According to Bloomberg, this trading rush has already forced the hedge fund Melvin Capital to ask for a $2.75 billion bailout from other investors after posting a 30% loss with Wall Street's old guard calling on the Securities and Exchanges Commission to find a way to regulate the influx of meme-driven trade.

One of the driving reasons that Reddit is buying up GameStop and Wall Street has to do with a thing called shorts. In the simplest terms, a short is a bet placed by a trader that the price of a stock will drop. The most famous example of this was dramatized in the 2015 movie The Big Short, where investor Michael Burry (played by Steve Carrell) made millions after correctly predicting that the housing bubble would burst back in 2008.

These potentially lucrative shorts being placed by hedge funds like Melvin Capital have in large part been the reason why the r/wallstreetbets community has targeted companies like Gamestop, and to less successful extent, Blackberry, Nokia, Hertz, and Bed, Bath and Beyond. Motivated by a desire to troll Wall Street, punish professional investors that prey on others' financial ruin and maybe get rich quick in the process, this emerging "meme market" of small investors has grown exponentially in recent days.

The proliferation of apps like Robinhood has also helped this swell in amateur trading become possible. They make it simpler for stock market newbies to make easy commission-free trades from the comfort of their homes, in theory, democratizing the space. This surge in trading has already begun to overload the system with Robinhood and several other brokerages reporting technical outages and system crashes.

Now with their sights set on buying up stock in AMC Theaters, The Verge reports that r/wallstreetbets' Discord server has already been hard at work generating AMC memes and trying to get people like Soulja Boy and Elon Musk to amplify their cause. While their push for high profile endorsements may not have been outright successful, the movie theater chain's stock has already opened up 250% above where it was yesterday. And judging by the extent to which the meme market fervor has spilled over to other social media platforms like Twitter, it could end up closing even higher by tonight.

Whether or not this meme market bubble that's brewing turns out to be profitable or a big bust is beside the point. The fact that a bunch of people who normally wouldn't even consider trading stocks have now mobilized to the extent where they've been able to cost hedge funds millions is worth taking note of.

Given the extent to which financial analysts and professional investment firms have been calling for the regulation of "meme-based" trading (setting aside how unrealistic it would be to control such a thing) does seem to suggest that Reddit's efforts have had a profound effect. There have been early comparisons to grassroots movements like Occupy Wall Street, but given the chaotic, nihilistic and highly unpredictable nature of r/wallstreetbets, it's too soon to say whether this could be the future of free market trading or nothing more than a high-risk memetic gamble.

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