We’re apparently living through the “Great Acceleration”. The COVID-19 pandemic has intensified existing trends. As the historian and philosopher Yuval Noah Harari puts it, emergencies have a tendency to “fast-forward historical processes”. One such trend accelerated by the pandemic has been the death of high street retail.
GameStop is the largest video game retailer in the world. It was founded in 1984, and has suffered badly from video gaming’s switch to digital distribution. In 2020, GameStop announced plans to close hundreds of stores permanently. At that time, shares in GameStop were trading for around $3 a share.
Another trend the pandemic has accelerated is stock trading apps. Robinhood is one such app, attracting young first-time investors with its simple, gamified interface. It has seen its user base skyrocket by millions during the pandemic, and the company loftily promises to “democratise finance for all”.
Robinhood is now at the heart of a “David vs. Goliath” battle between meme-loving Reddit users and Wall Street hedge funds. The funds had “shorted” GameStop (essentially betting that GameStop’s stock would drop in value), and thousands of small investors coordinated a mass stock-buying campaign on Reddit to pump up GameStop to (at one point) over $480 a share. The hedge funds who bet on GameStop stock falling ended up losing billions.
At this point, Robinhood restricted trading of GameStop stock. At a time of intense partisanship, Robinhood managed to unite politicians from both the left and right in condemnation. Critics accused the company of effectively rigging the market against small traders, while allowing hedge funds and big investors to trade normally.
However, analysts caution that most small traders stand to lose money. Few dispute that GameStop stock is massively overvalued and will come crashing down hard. Regulators are now wondering if they should step in to raise margin requirements and make it harder for this to happen again in future.
Was it wrong for Robinhood to restrict Gamestop trading? Should regulators tighten up the rules around stock manipulation? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!