The Gamestop (GME) stock is experiencing more volatility than Bitcoin.
These days, the cryptocurrency queen seems to be caged in a sideways channel that fluctuates between $31,000 and $32,000. Meanwhile, on the NYSE, Gamestop is livening things up for investors.
In just a few days, the company’s shares have surged. Yesterday alone, the stock gained 93.4% from $76 to $147, and today’s pre-market open indicates another 30% gain.
In just one month, GameStop has seen its shares rise almost 700%. But what happened?
Some guys who hang out on a Reddit group, WallstreetBets, started betting heavily on GameStop’s rising stock.
Melvin Capital, a hedge fund that had a basket of stocks it was aiming to sell short, found itself taking a loss on its hedge fund. In practice, a group of very young people brought a financial bigwig to its knees.
Two companies stepped in to inject $2.75 billion into the hedge fund. This allowed Melvin Capital to sustain losses and close short positions on GameStop.
Technically, what is called a short squeeze occurred, i.e. a sudden increase in price, at a time when investors had built up short positions.
According to Cryptonomist trader Federico Izzi, the events that took place with Gamestop’s stock are destined to mark a turning point:
“What happened marks an event that in the future can be defined as a gamestop event and opens up decidedly different scenarios, changing the balance of finance. Today, thanks to technology, which puts many people in contact with each other, it is possible to create financial imbalances that until recently were impossible, even unthinkable. This opens up new hypotheses for the future, because the power is no longer in the hands of a few, but also in the hands of the younger generations who have small amounts of capital.”
Gamestop shares, risk of collapse?
All this happened just when GameStop was in the middle of a crisis, so much so that in recent days, due to the pandemic, it had announced the closure of over 200 outlets worldwide.
GameStop is in fact a chain of video game shops. Like everyone else, it is dealing with the consequences of the Covid-19 pandemic. The stock market rally of recent days may save it. However, analysts note that too rapid a rise can lead to equally rapid falls. Those who are familiar with Bitcoin know something about this.