If you barely use the internet, you must have heard about GameStop. Many must have ignored it after hearing it is another stock scam, but this time the fraud has taken down the wall street behemoths.
For those who want to know why the internet is exploding about GameStop stock prices, let us tell you why.
A very short version of this scandal is that a bunch of Redditors banded together and decided to take down Wall Street. It is similar to a blockbuster storyline where some groups use the internet to hyperinflate the price of GameStop, and some wealthy investors suffered losses in billions.
The Whole Story Behind the GameStop Stock Scandal
Not to anyone’s surprise, GameStop has been a dying business for a while. In a time when digital business is skyrocketing, companies like GameStop are becoming increasingly irrelevant.
Digital consoles are gaining popularity over game stores, resulting in a slump in their businesses. Since the pandemic, many companies have had to close shop due to changing tastes. Even before the pandemic, game stores like GameStop started losing their charm.
Regarding GameStop, the company has lost over 1.6 billion dollars in the last three years, and its stock has steadily declined over the past six years. Presently, the company is under 500 million dollars in debt.
So when a company as big as GameStop dies, it attracts vultures. In this scenario, the vultures are the investment groups betting on GameStop’s failure.
The technique they are using to fill their pockets is known as shorting. To call a short, the investor needs to sell the stock, and before the day ends, they have to buy back the share. As long as GameStop continues to die, the investment group will keep making money.
This is where Reddit enters the picture. A group on Reddit known as Wallstreetbets started buying Gamestock shares as more or less a joke. There was a rumor that the investor group was planning to milk the dying cow, GameStop, and Redditors decided to swoop in and leverage the opportunity.
Check out this Reddit post from WallstreetBets:
People are tweeting:
Redditors Democratized the Market Manipulation
The investors who have already sold the stocks without buying suffer losses as the price of GameStop is dramatically rallying instead of dropping.
If the investors decide to buy back the shares to recover losses, the price of GameStop shares will increase further due to buying pressure. In simple words, the value of the stock will increase due to high demand. The current situation of these investors is just wild.
Now, because GameStop’s stock isn’t plummeting, the hedge fund holders require bailout cash to survive the scenario. In contrast to this situation, the Redditors involved in the scam are filling their pockets at the moment. The stock price has jumped three hundred times and is so volatile that no one can predict what will happen next.
So this entire GameStop scam wasn’t just an investor’s group strategy but had the equal contribution of the Redditors, while several other factors are simultaneously snowballing.
Among all this, the Gamestock board plans to utilize the situation and use the profit to bring GameStop back into the game. They might also decide to pay off the huge debt that the company has accumulated over the last few years.
Traditional investors are hoping that the GameStop stock price will soon collapse when the Redditors are done with it. However, the Redditors continue to hold the line and draw profit from the scam.
The situation will undoubtedly cool down when the investors and Redditors decide to cash out.
What are your views on the Gamestock scam? Is it healthy for the country’s economy?
Let us know your opinion in the comment section below.
Source: International Banker
