For the last week, all eyes have been on GameStop (GME). Millions of users from forums such as Reddit’s WallStreetBets have piled into shares and call options of the wounded mall retailer, causing a short squeeze of epic proportions.
GME shares rose from less than $4.00 just six months ago to more than $460 this week. Large hedge funds that were short GME (betting that shares would go down) — such as Melvin Capital — have been crippled and are rumored to be nearing bankruptcy.
For the last year or so, I’ve been a regular reader of WallStreetBets. I’ve followed their campaign to squeeze GME shares closely. It’s been remarkable to watch, and you can’t help but root for them.
Their campaign is being hailed as a revolution against Wall Street. A David vs. Goliath battle. The Republic battling the Evil Empire. It’s an attractive narrative.
But on Thursday, as I write this, Wall Street is striking back. Online brokers such as Robinhood have restricted trading in Gamestop and other stocks such as AMC. Both were heavily shorted by hedge funds and being “squeezed” higher by retail traders. Wall Street firms are some of the most powerful entities on Earth. When you trade stocks, you’re ultimately playing in their world.
After the restrictions were put in place on Thursday, GameStop shares dropped from a high of over $468 to a low of around $132 — but have since bounced back to around $255 as I write this.
The game these traders are playing is a risky one. Yes, a lot of them made massive gains on GME. And I’m happy for them. But I’m pretty sure a lot of people will get burned in the end. GameStop is trading far above whatever the fair value of the company is. Eventually there will be a rush to the exits, and those who don’t time it well will be left holding the bag.
Bitcoin + Startups: My Preferred ‘Revolutionary’ Asset Classes
I don’t see the GME phenomenon and other squeezes as revolutionary. They are remarkably well organized — and decentralized — stock promotion campaigns. And I do believe that WallStreetBets and other retail trader groups will continue to rise in power and influence. I will continue to follow their activities with great interest, rooting for them to make “tendies” (tendies = chicken tenders = profits in WallStreetBets lingo).
But I’m not a short-term trader. I’m focused on long-term investments such as bitcoin, which I believe is truly revolutionary. Bitcoin is an alternative, decentralized financial system growing before our eyes. It’s digital gold, an alternative and speculative (for now) store-of-value.
Bitcoin is a direct way to circumvent the fiat monetary system. Millions of people own it as a hedge against inflation and reckless government spending. It’s uncensorable and decentralized. Now that’s revolutionary.
The Startup Investing Revolution Is Also Underway
Investing in private startups is another revolution that’s well underway. For more than 80 years, 95% of the U.S. population was essentially banned from investing in startups. Only wealthy accredited investors could access private markets. That all started to change when Regulation Crowdfunding (Reg CF) went into effect in 2016. Today there are hundreds of deals that anyone can invest in at any given time.
And at some point this year, the limit on Reg CF deals should increase from $1.07 million to $5 million (the regulation is being reviewed again by the Biden administration). This will dramatically increase the number and maturity of startups who raise money from the public. Soon anyone will be able to access far more startup investments, including ones with more traction and less risk. It’s going to be amazing.
So while I wish the WallStreetBets traders well, I’m focused on other asset classes — ones I see as truly revolutionary.