Author: Ivo Knorr
June 14, 2021

If you are even slightly interested in the stock market, there's a good chance that you have heard about the gamestop story a few months back. But what exactly happened?

In a span of 6 months, the gamestop stock rose more than 7500%, while the company itself was not even doing so well. This was because of a group called r/wallstreetbets, a group of people on the internet forum Reddit. They figured out that certain hedge funds were betting against a few stocks. They were ‘short selling’ this stock. 

Short selling means that the investor expects a stock to decrease in price. What happens is that the investor borrows a stock, then immediately sells it to a buyer who buys it for the current market price. Later, when the price for the stock has decreased, the investor then buys the stock at the new lower price, in order to return the borrowed stock.

So, when the group found out that a lot of hedge funds were short selling the gamestop stock, they decided to all buy the gamestop stock, drastically increasing the price. The hedge funds still had to return their borrowed stock, but now at a major loss. While the hedge funds lost money, members of the internet group earned a lot of money thanks to major price increases. Today, a few months after this stock fiasco, the price is still hovering around 200 USD, opposed to the approximate 17 USD at the start of the year.

Another similar situation is the ‘dogecoin’. Dogecoin is a crypto currency, similar to bitcoin -which we talked about in one of our other blogs-, Dogecoin was created in 2013 as a complete joke. It was marketed as a ‘fun’ version of bitcoin with its logo being a japanese dog. Dogecoin differs from bitcoin in the fact that there is no limit on the number of coins being created. It also does not have as many real world uses as bitcoin currently does. Over the years, dogecoin has been attractive to casual investors, who just wanted to joke around with crypto. But dogecoin’s popularity has drastically increased this year. From about half a cent per coin at the start of 2021, dogecoin reached its peak of around 60 cents in may.

This is largely thanks to dogecoin’s biggest supporter: Elon Musk. Whenever Elon Musk tweeted something vague about dogecoin, its price always immediately went up.

Not only is Elon Musk to thank for the insane popularity of dogecoin, but also the aforementioned internet forum Reddit has played a part in it. In a very similar situation to the gamestop stock, a group on reddit suddenly decided to put all their money into dogecoin, making some of them very rich. Unfortunately, the original creator of dogecoin already sold all his dogecoin in 2015 and did not get rich from the massive popularity increase of his own coin.

Whether or not it is smart to invest in stocks like gamestop or in crypto like dogecoin is still up for debate. Their profits have everything to do with actively trading and being talked about daily. In theory, both of these could crash without warning, having little to no real world stability behind them. Investing is always a risk, but sometimes it sure can pay off massively in weird ways.

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