The rise of social media has revolutionized the investing landscape, giving way to a historically unprecedented era of retail investor empowerment and reshaping the traditional dynamics of Wall Street. It’s David vs. Goliath, but the DeFi version.
In several instances, the collective power of online communities has resulted in major financial institutions losing billions. Let’s explore 5 notable times when “anons” defeated Goliath, creating a seismic shift in the investment world.
GameStop and WallStreetBets
In 2021, a Reddit group called WallStreetBets (WSB) sent Wall Street into a frenzy, when their collective buying action sent GameStop stocks skyrocketing in value. This historical saga of 2021 showcased the extraordinary collective action of the WallStreetBets, and by extension, every retail investor. This driving up GameStop’s stock price to astronomical heights caused billions in losses for hedge funds — especially Melvin Capital, which saw approximately $4.5 billion in losses.
Dogecoin and Elon Musk
In December 2020, a single tweet from Elon Musk catapulted Dogecoin, a memecoin, into the limelight. Elon Musk tweeted “One Word: DOGE” and its value skyrocketed by over 20%, reaching a market cap of $85 billion several months later. However, despite the initial frenzy, Dogecoin’s market cap has since settled at around $9 billion, which although is still remarkable, is far less than its market cap’s all time high.
The popular trading app Robinhood faced intense backlash and a boycott when it restricted trading on volatile stocks, including and especially GameStop during the 2021 investing frenzy. Retail investors accused Robinhood of favoring institutional players, leading to widespread criticism and highlighting the impact of social media-driven retail investor activism.
Melvin Capital was all but destroyed asWallStreetBets collectively bought and helped GameStop. This event dealt massive losses to Melvin Capital, among other hedge funds and institutions. This demonstrated the potential of online communities to challenge established financial institutions that were traditionally perceived as impervious, and even led to the SEC later conducting an investigation.
Following the GameStop saga, retail investors directed their attention towards AMC Entertainment. Coordinated actions and discussions on social media platforms fueled another buying frenzy, ultimately driving up AMC’s stock price and posing another significant challenge to short-selling hedge funds.
The controversy surrounding Robinhood’s trading restrictions prompted congressional hearings. Key figures, including Robinhood’s CEO Vlad Tenev, were called to testify before Congress, explaining their actions during the GameStop frenzy. The hearings reflected the widespread impact and scrutiny of social media-driven market disruptions.
Broader Market Impact
The GameStop saga raised fundamental questions about market structure, fairness, and the balance between institutional and retail investors. Regulatory bodies, such as the SEC, conducted investigations into market activities, including the actions of hedge funds like Melvin Capital.
The influence of social media on investing has created a paradigm shift, amplifying the power of retail investors and challenging established financial institutions. The GameStop saga and other instances of collective action have propelled discussions around market structure, investor protection, and the role of technology in finance. As social media continues to shape the investing landscape, it is crucial to understand the opportunities, risks, and implications associated with this newfound power.