AMC, GameStop Stock Goes Wild: Reddit’s’ Insane ‘Train Wreck’ ‘Ponzi Scheme’

Many of today’s adults spent their childhood in GameStop stores. They bought and sold consoles and games. They lined up for launches. Now some of those people have gotten rich buying stock of the company and encouraging their friends on Reddit to buy it too. GameStop’s stock has skyrocketed higher than ever expected in recent weeks, all because activity among investors on social media started to ramp up. Wall Street had bet heavily that the company would fail, but as the price continued to rise, investors were forced to reset their bets. That raised the flock and then swayed wildly.

Jaime Rogozinski, the ostensibly founder of the Reddit community at the heart of it all, told The Wall Street Journal that it is like “a train crash happening in real time.” Keith Gill, the Reddit community merchant who helped kick-start the fight, told the paper he “didn’t expect this”.

On Thursday alone, GameStop’s stock hit an all-time high of $ 492.02 per share, only to drop more than half a minute later. It closed trading at $ 325 on Friday.

GameStop itself has not fundamentally changed in the past month. It is still a struggling retailer facing an uncertain future against the rise of online shopping. But the stock is up a whopping 1,800% since the start of the year – that’s not a typo. These dynamics led Wall Street investors betting against the company’s future to lose billions of dollars, and the excitement is drive the hype even further.

Over the past week, the financial world has watched in shock as GameStop shares soared to unimaginable levels. Even Elon Musk tweeted about it, pointing his 43 million followers to a link from the Reddit community investing in GameStop called r / WallStreetBets.

By the end of regular trading on Wednesday afternoon, the stock was at $ 347.51 a share, up from the historical lows of about $ 3.30 a share in the summer of 2019. And during off-hours trading, it fell by more than 37%, only until getting up again. Thursday saw even more dramatic moves as the stock jumped up to $ 492.02 before dropping nearly 60% and closing at $ 197.44. It then rose back to $ 311.99 during after-hours trading.

In the meantime, apps for trading stocks also appeared stop or restrict the purchase of GameStop stock for at least part of the day.

The popular equity app Robinhood in particular pulled for that seemed to be one of the most restrictive new rules. People had been voicing their concerns about Robinhood for a while saying it gamified stock trading to a potentially dangerous degree. Now it is accused of outright market manipulation, including through at least one class action lawsuit that has already been filed. Robinhood, for its part, said on Friday that the market rules actually forced it to put in place those restrictions.

Read more: GameStop’s stock spike is fueled by jargon from Reddit’s r / WallStreetBets community. Here’s what it means

“We’re seeing a phenomenon I’ve never seen before,” Jim Cramer, a Wall Street commentator at CNBC and a former hedge fund manager, said on a segment Monday. And GameStop could be just the beginning. “It’s insane.”

This may seem like a strange story about Wall Street investors being overrun by excited social media users. For some, it was fun watching those investors being taken to the cleaners by a bunch of people posting rocket emojis saying GameStop stock is going “to the moon.”

But for some on Wall Street, it’s the latest sign of how social media can change everyday life. Twitter has changed the worlds of news and politics. YouTube and Instagram have transformed the fashion, beauty and entertainment industry. Now Reddit is taking over Wall Street.

These worlds also overlap. Fans of Korean pop groups known as K-pop stans post a stream of tweets about their favorite stars to overwhelm racist hashtags on Twitter. And TikTokers teamed up to confuse President Donald Trump’s reelection campaign.

Now, encouraged Reddit communities are talking about including other companies that Wall Street is broadly betting against. The Reddit audience is already trying to boost BlackBerry, the once-popular handset manufacturer that now focuses primarily on business software sales. And Redditors are targeting struggling movie chain AMC as well, swinging its share of the stock from around $ 2 a share to over $ 8 in after-hours trading. Wednesday afternoon it closed at $ 19.90 a share before falling to $ 12.75. On Thursday, it fell even further to $ 8.63 a share.

The actions of the Reddit community have had such an impact that TD Ameritrade took the extraordinary step last week restrict stock trading on Game Stop and AMC stocks, “from an abundance of caution amid unprecedented market conditions.” Nasdaq also warned it will stop trading stocks it believes are being manipulated by social media.

Meanwhile, traffic to the Reddit community at the center of the drama, r / WallStreetBets, is breaking records. According to a report by Mashable, r / WallStreetBets counted 73 million page views for its discussion forums on Tuesday. About 700 million page views were reached in the past week. Reddit is already the 46th most popular site on the Internet, with more than 78 million unique visitors in December, according to comScore. And on Wednesday, Reddit’s mobile app hit the largest single day of downloads, industry watcher Apptopia said.

But when the memes end and the excitement subsides, GameStop will get back to that struggling video game vendor at a time when gaming is moving towards streaming and the idea of ​​hitting a brick-and-mortar store is still a nerve-racking prospect during a pandemic. At that point, stock analysts say, whoever still owns shares will see their value evaporate.

“This is unnatural, insane and dangerous,” Michael Burry, a prominent GameStop investor and one of the subjects of the book and film The big short, wrote in a now-deleted tweet. His investment of about $ 17 million in the company has exploded to $ 250 million since Tuesday, Markets Insider reported.

Who’s Listening?

Michael Pachter, a longtime video game analyst at Wedbush Securities, said he hasn’t even bothered to update his stock price forecasts for GameStop since the stock went crazy last week. “Who’s Listening?” he said in an interview last week. “Nobody cares what a sell-side analyst says right now.”

To him, there are reasonable explanations as to why people might be somewhat excited about GameStop. One of the newest board members, Ryan Cohen, helped turn Chewy into one of the largest online pet product retailers in the world before selling it to PetSmart. GameStop is also on track to return to profitability.

But that doesn’t come close to explaining GameStop’s stock price now. “It’s a Ponzi scheme,” Pachter said, referring to a form of fraud that appears to be making money, but is actually only backed by funding from new investors. “There is a point where it will drop.”

He suspects this could happen after the company released its quarterly results in March, after which executives and investors on the board may sell their shares.

One thing analysts are looking at is whether the Reddit investors will lose their millions when the stock eventually crashes back to Earth. Rogozinski, the man who helped found the Reddit community, said their approach to investing is more like gambling than traditional analysis and strategy. The members, referred to as ‘degenerate’ by the community, often encourage each other to push all of their funds into one share, up and down. Their messages are interrupted with sentences such as “hold the line” and “diamond hands” (hold your shares for a long time) and YOLO (you only live once).

He told the WSJ he never thought the Reddit community would change from its inception to what it became. “It’s a bit like watching one of those horror movies where you see the villain slowly going up the stairs,” Rogozinski said.

Indeed, even Keith Gill, the community member who helped launch the first battle for GameStop, told the Journal he was surprised by what it had become.

“I thought this transaction would be successful,” he said, “but I never expected what happened in the past week.”

Meanwhile, the social media hype continues on Reddit, where users indicate their intention to buy and hold more GameStop stock, all to push prices even higher.

“My mom told me it’s time to sell,” one Reddit user wrote in a post about GameStop’s stock moves. “Shall I find a new mother?”

“Yes” replied another user. “The answer is yes.”

Read more: Why GameStop, BlackBerry stock has suddenly risen, thanks to Reddit