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Saturday, September 25, 2021

How a group of gamers turned the trading world upside down

A bubbling anger that could be traced all the way back to the worldwide financial crash of 2008 finally found a voice in a disparate online mob, who suddenly realised that a million micro-traders with a singular focus could overpower even the biggest of hedge funds. And it wasn’t just the binding power of social media spurring them forward; for the first time in history, Main Street had at its disposal the same financial instruments as its moneyed counterpart.

Robinhood – a Silicon Valley fintech unicorn founded in 2013 by maths prodigies Vladimir Tenev and Baiju Bhatt with the goal of “democratising finance” by handing the tools of expert traders to anyone with a smartphone – had fast overtaken the more staid online brokerages by offering zero-fee, no-balance trading, along with a slick interface that was both easy to use and immensely fun. Buy your first stock, and confetti flowed across your screen; bright colours, plucky sounds and vibrating feedback made investing feel like a video game, the perfect complement to a movement that revolved around propping up a beloved console retailer like GameStop.

The resulting short squeeze – a phenomenon caused by short-sellers rushing for the exits as a stock price spirals upward, trying to rebuy their borrowed shares, which only serves to push the price higher and higher – shone a spotlight on the power of the Wallstreetbets stock trading discussion group on Reddit. GameStop Corporation (GME) ran from a low of a few dollars a share to nearly 500. The rise was compounded by a single tweet – “Gamestonked!” – shortly after market-close on January 26 from Elon Musk, the ultimate anti-short, internet gadfly.

And it was only when Robinhood, flailing after being served with a collateral call from federal clearing agencies to the tune of $3.7 billion (£2.6bn), froze the buying power of its users, that the squeeze at least temporarily ended, and the price descended to a still fairly spectacular and steady state, around the $200-a-share mark.

Wherever the price of GameStop’s stock finally settles, the moment continues to resonate: those four days in January proved that the concept of ‘value’ has changed. The price of an asset is no longer tethered to its fundamentals. Things – stocks, cryptocurrencies, tokens, whatever – are worth whatever we, as a group, decides they are worth.

The rise of GME, the ultimate meme stock, was not an isolated event. AMC and Blackberry Doge have both risen to frightening heights based on Reddit posts, rumours and anti-Wall Street sentiment. The founding principle that there is order or rationality in the market has been proven wrong again and again – and, in the end, no investment, no matter how well researched and thought out, can be considered safe.

The events surrounding GameStop saga have put the Wall Street and the City on notice. The pillars have cracked – and perhaps one day the roof will come down. Now that micro-traders realise the power beneath their fingertips, financial markets must learn to adapt to a new reality; a new balance of power that, at the touch of screen, can favour emotion over fundamentals.

The Antisocial Network by Ben Mezrich is available from Telegraph Books for £14.99. To order, visit books.telegraph.co.uk or call 0844 871 1514

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