For the past year, the word “unprecedented” has been overused to the point of farce. From the pandemic to the final, violent gasps of the Trump administration — and more recently, the presidential inauguration — there has been plenty of cause to trot it out.
To me, the word has come to embody an attitude of clinging to the past in the face of overwhelming change. A shorthand for commenting on individual events without appreciating the wider tide of change that has delivered them.
For that reason, I am loathe to describe the GameStop incident as unprecedented, although I recognize that the social media-driven investment rally is a decidedly new phenomenon. But while the specific market manipulation element is new, the wider pattern — social media undermining the norms and power balance of a crucial institution — is not new, at all. In fact, it has become the defining struggle of our time.
Some context for the uninitiated: GameStop, a video game retailer, has been dealt a one-two blow by the decline of shopping malls and the ubiquity of digital video game downloads. GameStop’s slow lurch toward the brink has made it a popular choice for hedge funds and institutional investors looking to bet against the firm by shorting its stock.
Although analysts do not expect the company to earn profits again until 2023, in recent weeks it has experienced a renaissance of sorts, seeing its stock move more than 700 per cent since mid-January.
By the company’s own admission, there’s no concrete basis for this unheard-of rally. So where did it come from? The same place as so many of the wild tales of our era: the obscure corners of the internet.
For weeks, commenters on Reddit and other social media investing fora have led a frenzied push to buy up commonly shorted stocks like GameStop, Nokia and BlackBerry. They have artificially inflated their value and, along the way, have cost hedge funds with short positions in the firms more than five billion dollars. Melvin Capital, one of the firms targeted by Reddit users, lost 30 per cent of its value and was forced to seek a $2.75 billion bailout to stem the bleeding.
The David and Goliath narrative writes itself. Indeed, it has been taken up with gusto by Redditors who see themselves as the “little guy” fighting back against the hegemony of corporate investors whose inherent advantages represent all that is broken in America.
Commenters have shared how their investment in GameStop has allowed them to pay for family members’ medical treatments and avoid foreclosure related to COVID-19. They egg each other on to “hold the line” and avoid selling in the face of media scrutiny. In short, they reinforce their self-conception as an outnumbered few fighting back against the injustice of the modern world — against Wall Street, the media and “elites.”
We have seen this before. Five years ago, Donald Trump took advantage of a similar democratization — of politics, rather than investing — to subvert the norms of presidential elections. The game, he said, is rigged — and it’s time to fight back.
Many said Trump was simply using social media to go directly to the people. But over time, his use of platforms like Twitter eroded the foundation of political discourse. Along the way, the balance of power in the Republican party was flipped from billionaire donors to everyday people who were given a voice like never before.
Thanks to the rise of cheap and simple-to-use trading platforms like Robinhood, we’re now seeing a similar trend in finance. And as when Trump’s words begat genuine violence, the platforms have had to step in to stem the fallout of the mob’s actions. In the face of an impending liquidity squeeze, trading platforms have suspended trades of certain stocks. They will no doubt incur the same wrath faced by Twitter and its peers.
As with regulation of online political speech, meaningful SEC intervention in the GameStop case is easier said than done. Perhaps it’s time to recognize that while the problems social media have wrought may seem “unprecedented,” they’re not. They are related and endemic to our modern world. And given that GameStop-gate spurred over 23 billion trades on Wednesday — the most ever in a single day — it appears their impact is not disappearing anytime soon.
