What do you do in such a grey area?
It’s been a rough week for GameStop. Currently, their stock is on a not-so steady decline, having dropped 41% in the last 24 hours. The real story is what led to this decline in the first place.
GameStop’s stock has been rapidly fluctuating due to a subreddit called Wall Street Bets. WSB consists of amateur brokers who invest in the stock market on a mostly-casual level. Early WSB investors at the time noticed a “short,” where traders make profit by selling a share at its original price and wait until the stock price goes down. Once that happens, the traders return the stock and make an easy profit.
Shorting is the very thing traders were trying to do with GameStop, but WSB caught onto it quickly. In retaliation, they bought GameStop stock before the prices dropped. The Redditors then began to hype the stock, artificially increasing its price and selling the shares in order for them to make a profit.
One thing needs to be clear: nothing WSB did was illegal in any way. Their plan worked as WSB outsmarted traders and used it to make a profit. I’m not arguing that their cleverness should be punished.
However, I will argue that the consequences of their cleverness warrant GameStop’s shares to remain closed for the time being.
Arguably the most notable reaction to GameStop’s surge in stock was when the app Robinhood announced it would be preventing users from buying GameStop stock. Other brokerages, including Charles Schwab and TD Ameritrade, quickly followed suit. With this decision, Robinhood placed itself in the middle of a war for what both the traders and Redditors want: money.
Robinhood received a lot of backlash from its users. It began with users of the app taking to social media to express their distaste on the decision. Then an army of consumers bombarded the app with one-star reviews.
The most recent act against Robinhood is what made me believe the closing of GameStop’s stock is justified. Robinhood is now facing over 30 civil lawsuits for their closure of GameStop’s shares. The charges are a breach of contract and fiduciary duty.
Should Robinhood have closed access to GameStop’s shares to begin with? No, but they wouldn’t have had to if it weren’t for WSB’s actions.
Robinhood is the number one app for finances on the Apple Store. This recent GameStop movement has become so popular and so financially demanding that Robinhood had to scrape together $1 billion just to account for everyone who invested in GameStop. However, that money quickly dried up, leaving Robinhood with no realistic way to keep providing GameStop investors with money.
WSB essentially pushed Robinhood past its limit. There’s nothing wrong with that on either party’s behalf. But Robinhood couldn’t keep up, which is why they closed GameStop on the app.
Now, they’re being sued for an incident by the same people and investors who made them raise $1 billion overnight. If that seems a little hypocritical, it is.
Financially, there is nothing Robinhood can do to accommodate for this massive increase in GameStop’s stock while still managing the entire app. GameStop is not the only company out there, and Robinhood had to make every decision with that in mind.
For the time being, GameStop should not be available to buy. The consumers have forced Robinhood to where the situation is unmanageable, and it will only get worse with the upcoming lawsuits.
There is a symbiotic relationship between traders and brokerages. Suing Robinhood for not being able to afford to give to all of GameStop’s investors money does not help the investors’ cause.
GameStop’s value, at the moment, is terrible. The smartest decision both WSB and Robinhood could make is to stop taking action and let this whole situation blow over. This means GameStop’s share price, for the time being, should remain restricted. Once everything blows over GameStop, Robinhood and every interested investor will recover. There’s nothing illegal or morally wrong with this situation; it’s just gotten too messy. Now, we need to let that mess clean itself up.