May 26, 2024

It looks like meme stocks are back in the game. Shares in video game retailer GameStop got a huge boost Monday due to a cryptic social media post. “Roaring Kitty,” the online name of American investor Keith Patrick Gill, who is known for igniting GameStop’s massive meme stock short squeeze in 2021, posted on X after a three-year hiatus — sending GameStop stock up as much as 110% and halting trading several times.

GameStop stock closed up almost 75%.

Gill gained national attention during the pandemic for his bullish analysis of GameStop on Reddit. On Sunday, he posted a picture on X showing a gamer leaning forward in the chair, indicating intense focus — and prompting speculation among followers that he’ll soon share his latest insights. The tweet has been viewed by over 10 million people as of Monday morning.

That helped send other meme stocks higher, with AMC Entertainment rising more than 17%. And popular memecoins Dogecoin and Shiba Inu jumped more than 4% and 5%, respectively. Trading of GameStop was halted eight times before noon on Monday due to volatility.

With some suspecting that meme stocks will return in full force soon, here’s a refresher on what happened in 2021 when meme stocks took Wall Street by storm.

How was GameStop in the pre-meme stock mania era?

A meme stock refers to the shares of a company that has become popular on social media platforms due to heightened social sentiment. It’s important to note that the popularity of meme stocks is primarily driven by their cult followings, and they may not necessarily be valuable assets in and of themselves.

The first meme stock to gain popularity was GameStop, the video game retailer known for operating stores in malls and a favorite stop for America’s teens and game-oriented adults.

At the beginning of 2021, few could have anticipated GameStop would experience a meteoric rise. The retailer’s cultural relevance and market share were diminishing by the mid-2010s as online purchases climbed and mall traffic declined. The COVID-19 epidemic, which closed malls and shopping centers in 2020, further hurt GameStop’s momentum. In late 2020, the company’s stock price hovered around $2.

Then something unexpected happened.

How did meme stock mania begin?

A group of small retail investors teamed up during the lockdown to collectively take advantage of GameStop’s low share price. Financial analysts — including Gill, who is known as Roaring Kitty on YouTube and DeepFuckingValue on Reddit — argued that the GameStop stock is undervalued and over-shorted.

Short-selling is an investment strategy in which an investor borrows shares and sells them, then buys them back later at a lower price, returns the borrowed shares (plus interest) to the lender, and profits off the difference.

Gill explained in a YouTube video posted August 21, 2020 that GameStop stock had one of the highest short interests in the market, and these short positions were mostly held by hedge funds. In the event of a massive short squeeze, he said, these funds would need to cover their positions, which would drive the stock even higher.

Another user named Stonksflyingup posted a humorous video on Reddit two months later explaining how Melvin Capital could leverage a short position to execute a short squeeze, using Chernobyl as an analogy for how the hedge fund might blow up.

As if this wasn’t enough, Elon Musk, the CEO of Tesla and SpaceX jumped in and tweeted: “Gamestonk!!” He shared a link to r/WallStreetBets, the Reddit message board on which bullish retail investors were discussing and promoting GameStop.

R/wallstreetbets recorded a record-breaking 73 million page views in just 24 hours. By January 29, 2021, the community had grown to 6 million users, making it the fastest-growing subreddit of all time. The social media platform had to temporarily close the subreddit to the public because of hateful speech and discriminatory content. The GameStop saga was so intriguing that it was the subject of a feature film, “Dumb Money,” in 2023.

Aside from GameStop, many other heavily shorted stocks saw increases in their prices thanks to the meme stock movement. AMC, for example, saw its price rise from $20 in January 2021 to $625 in June 2021.

When the meme wave spread to the crypto world

In addition to stocks, cryptocurrencies were also influenced by meme stock mania. On Reddit, investors discussed what cryptocurrency was equivalent to meme stock GameStop — and their conclusion was Dogecoin. Created as a joke by software engineers Billy Markus and Jackson Palmer in 2013, Dogecoin features the likeness of the Shiba Inu dog popularized in the Doge meme.

Just as GameStop reached its pinnacle, Dogecoin started to gain traction, peaking at $0.74 per coin in May 2021.

After the GameStop saga, another event sent Dogecoin to the moon. On Feb 4, 2021, Elon Musk tweeted a single word on Twitter: Doge. Crypto enthusiasts and the media took note, and Dogecoin’s price surged dramatically.

Later in the year, Musk hosted NBC’s “Saturday Night Live” and referred to himself as the Dogefather. At one point, he said Doge is his favorite cryptocurrency because “it has the best humor and it has dogs.” Musk’s continued promotion of the stock helped lead to its inclusion in the top 10 cryptocurrencies by market capitalization.

And the investigation begins

By late January 2021, trading platform Robinhood halted buying GameStop stock due to abnormal price fluctuations. The U.S. Financial Services and Senate Banking Committees scheduled a hearing on February 18 to discuss the situation.

Moreover, Janet Yellen, the U.S. Treasury Secretary, requested a meeting of regulators to address the stock’s volatility. A U.S. House hearing titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide” was held in February 2021.

Robinhood CEO Vlad Tenev assured the panel that the trading platform maintains no inappropriate relationships with hedge funds. And Gill testified, “A few things I am not: I am not a cat. I am not an institutional investor, nor am I a hedge fund.”

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