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GameStop: Is This the Beginning of Something Much Bigger for Crypto?

5 mins
Updated by Ana Alexandre
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In Brief

  • Using Reddit and social media, small-time traders coordinated their efforts to buy $GME and drive the price up.
  • Robinhood froze its users’ ability to buy $GME and other stocks it considered volatile.
  • The old tricks don’t work the same way anymore.
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As the crazy news cycle about GameStop and WallStreetBets continues to spin and throw us deeper into the until recently unimaginable, I’ve taken to looking backward to try and make sense of what’s happening.

Pyrrhus, the ancient Greek, had “more of the terror than of the majesty of kingly power,” according to Plutarch. The latest business with retail traders, GameStop and the hedge funds, has had me thinking of Pyrrhus.

(Note: Pyrrhus was the king of Hellenistic Epirus whose military successes against Rome and Macedonia gave rise to the commonly used phrase “Pyrrhic victory.” Hence why it can be applied to the GameStop and WallStreetBets triumph.)

At this point, everybody is familiar with the story. Retail traders, whose numbers have swelled during the pandemic thanks to more free time and easy-entry apps like Robinhood, realized that a number of hedge funds had gone short, really short, on GameStop and a few other stocks.

Using Reddit and social media, small-time traders coordinated their efforts to buy $GME and drive the price up. The result — at one point, a 1,700% increase — was sensational, and drew the world’s attention.

This was David vs Goliath. And what a time for it to happen! The pandemic has seen wealth inequality in America rose to historic levels. The wealthy have gotten wealthier and nearly everybody else has been left behind.

Robinhood drops the bag

So, you would think, this GameStop affair could be a good opportunity to right the ship a bit. With all the warning signs, it would be hard to interpret what happened as something other than a flare-up of deep-lying tensions that could lead to more dangerous things.

But how was it handled? Robinhood, the app named for the hero famed for robbing the rich to give to the poor, froze its users’ ability to buy $GME and other stocks it considered volatile.

While retail traders were blocked out of buying, hedge funds had free reign to sell, effectively allowing them to lower the price and cover their damages. Robinhood’s excuse? Well, it depends on when you ask them.

Robinhood CEO Vlad Tenev first denied that the company shut down trading due to liquidity issues, only to change his tune a couple days later. You would think that this kind of thing would spark outrage, even investigations. While there were voices from across the political spectrum that spoke out about what was happening, there was also something quite disturbing.

Kimmel blames the Russians

An example of this can be seen in Jimmy Kimmel’s monologue from last Friday night. Describing the GameStop situation Kimmel said:

“Despite a sharp decline in sales, over the past six months [GameStop’s] stock price has grown by 8,000% because a bunch of amateur investors, maybe even some Russian disruptors, who are part of a Reddit community called WallStreetBets decided to buy a bunch of GameStop stock and drive the price up and screw over the hedge fund guys who had shorted the stock.”

Now, giving Kimmel the benefit of the doubt, I tried to find some coverage of these potential “Russian disruptors” being behind the GameStop rally. Not only is there no mention of anything of the sort in all the major media outlets, not even fringe media has printed anything about this being the work of Russians.

So, how could Jimmy Kimmel — while we are collectively reeling from the visible damage being done by the spread of whacked-out conspiracy theories and fake news — nonchalantly stand before his audience of millions of Americans and suggest with absolutely no evidence that this was the work of pernicious Russian saboteurs?

The answer must be simply because he can and it is in his interest to do so. But we should be clear about what he and others like him are doing. It is fear-mongering, plain, and simple. Ignore the growing wealth disparity, ignore that hedge funds — who manipulated the market for their own benefit, all the time — put themselves at a huge risk, ignore the fact that anyone can go to Reddit themselves and see who is responsible for the GameStop rally and their reasons for doing what they did.

It’s the Russians and, therefore, it’s a threat to all we hold dear. What may be even more disturbing is the number of stories that came out this week claiming that the Reddit traders had shifted their attention to Silver.

“Silver is the new Gamestop,” declared NBC on Monday, Feb. 1, while the GameStop fiasco was still in full swing. The only problem was, if you actually went to the Reddit community at the heart of the stock push, they were all saying don’t buy silver.

The growing gap

If you were one of the many investors who got stiffed by Robinhood while Wall Street got a free pass, it would be hard for you to see the way the media is portraying this and not start trying to connect the dots.

If there is no accountability for this kind of manipulation of the public discourse, then how are people expected to trust the media? The rise of retail investing had been one of the bright spots in an otherwise gloomy past year.

The way this sector had been developing, along with other markets like digital finance and crypto, was giving many hope for the future. Millennials, the dominant demographic for Robinhood users, own just 5% of US wealth. Millennials also account for the biggest chunk of the US workforce.

That’s a recipe for disaster. For comparison, back in 1989, when baby boomers were at a comparable age to where millennials are now, they held over 20% of the nation’s wealth. 

Unless things change, we are on course for disaster.

I still believe that with the help of new tech, things will work out. The growing popularity of investing and interest in DeFi are good developments. As this episode has illustrated, the little guy is going to have to get creative. The old guard is not going to give up its power easily.

But for all the knocks it has taken, the millennial generation is nothing if not resilient. What the old guard is engaging in now is terror tactics. But when it is done so transparently, how long will it work? My guess is not long.

The internet has changed the way we communicate, the way we learn, the amount of knowledge we have available; the old tricks just don’t work the same way anymore.

So while Citadel and the other Wall Street hedge funds involved in the GameStop saga may have emerged victorious for the time being, the nature of that victory has to be considered Pyrrhic.

People are getting smarter and there have to be more inroads for everyday people into finance. Without that happening, we will likely face a great deal more of economic volatility with wide-ranging consequences. As it is with Pyrrhic victories, with a couple more victories like this one, the old guard will be ruined.

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Mike Ermolaev
Mike Ermolaev is the founder of Outset PR agency. Having worked in public relations since 2010, he began his career in crypto market PR in 2018 with FutureComes, a blockchain analysis and development agency. A few of his career accomplishments include co-founding Tópos Digital Communications Agency and building PR from scratch at ChangeNOW, a crypto exchange platform, and Kikimora, startup launcher. Mike has regularly contributed to Benzinga, Bitcoin Insider, Bitcoin Magazine, FXStreet,...