The GameStop stocks surge fuelled by a community in the social media Reddit uproar is still unending. Instead, the predicted bubble is attracting more people to invest in GameStop. Analysts fear the “gamestonk” phenomenon might hurt retail and amateur investors badly. The whole fiasco also brings up another discussion over social media regulations. Just like how social media restrict weapons, drugs, and other illegal activities, should we put the same treatment to lucrative regulated goods like stocks?
Retail and amateur investors put money in GameStop, concerns arise
According to Reuters, more and more investors are starting to join in the GameStop bandwagon. Michael Pachter, an analyst at Wedbush Securities, told Reuters that one of his friends invested $1,000 Reddit favourites. Pachter’s friend is currently ecstatic over the $400,000 surge in GameStop, AMC Enertainment Holdings Inc and BlackBerry Ltd shares in only two weeks. However, the true horror comes by Pachter’s following statement saying that his friend “doesn’t even know what GameStop sells.”
Accordingly, GMO’s head of asset allocation, Ben Inker, noted that the GameStop rampage might inflict less problem on hedge fund managers. “The reality is that GameStop doesn’t hurt Wall Street. It might hurt a couple of hedge fund managers out there, but no one is going to cry for them. The people who will be losing their life savings are small retail investors,” Inker said.
Should there be regulations to restrict stocks discussion on social media?
It’s not the first time social media has brought such a big change to the market. According to studies compiled by Reuters, cryptocurrency pump and dump schemes are sometimes affected by anonymous posts. What happened to GameStop, though, is much more different from what has happened in the past.
Despite the support from numeral elected officials and the general public, the other half is criticizing how Reddit users are “manipulating markets unlawfully by pumping shares of weak companies,” Reuters wrote. Professor Jesse Fried, however, came out strong and said that the activities solicited by the stock trading forum are “purely legal behavior: irrationally exuberant buying by amateur investors.”
Professor Stavros Gadinis of the University of California, though, thinks differently. Gadinis argues that there is a slim chance to prosecute users for deceiving investors. Gadinis also agrees that social media should have the same ability from stock market operators to prevent alleged manipulation.
Additionally, Sinan Aral of MIT Initiative on the Digital Economy said that “there’s all of these feedback loops and incentives behind the scenes.” Thus, investigating the culprits behind the act could be challenging, as “we don’t know exactly who was in the crowd.”