3 Takeaways From Reddit v. Wall Street

The internet is Babel 2.0, and it is a sight to behold.

I have been absolutely captivated by the way a group of nearly six million Redditors have been at war with Wall Street hedge fund managers this week. If you have absolutely no idea what has been happening, read this. The internet community at the center of this whole thing is a subreddit called /r/WallStreetBets. They describe themselves as “if 4chan got ahold of a Bloomberg terminal,” which is exactly right. It is an incredibly crass, rude group of people who rally together in truly remarkable ways.

In summary: a bunch of rich hedge fund managers bet big on GameStop failing, Redditor stock traders called their bet, and in doing so they effectively initiated a war between the common man and the hyper-rich Wall Street establishment. This war is primarily being fought on the battleground of GameStop ($GME), but it is also being fought on other battlegrounds like AMC Theatres ($AMC), BlackBerry ($BB), and Nokia ($NOK), which were all shorted like GameStop, but not quite as dramatically.

There is so, so much to take from this whole saga. I have been hanging out in the subreddit all week and in the Discord chatroom connected to the subreddit. I have never seen a platform so raucous. Honestly. Here are three takeaways from all of this, mostly dealing with social media and branding:

1) There is tremendous power in numbers.

A lot of people have likened the movement of WallStreetBets to Occupy Wall Street, the Trump movement generally, or the Capitol siege specifically. The similarity between all of these movements lies in their shared populism, as a collective of people attempting to hold massive institutions accountable for their perceived corruption and unjust activity.

Early this week, when I became a subscriber to the /r/WallStreetBets subreddit, there were about 2.5 million subscribers and roughly 300,000 users active in the evening early in the week. As of last night, there were about 4.5 million subscribers to the subreddit and more than a million users active in the evening. This morning there were 5.8 million subscribers—1.3 million new ones in like 12 hours.

When I was watching discussion in the Discord and seeing people post their positions on these stocks, very few had more than one or two thousand dollars on the line. It isn’t like people are betting their lives on meme stocks. They’re throwing some spending/stimulus (“stimmy”) money in on what they believe is a revolution to hold some of the richest people in the world accountable for their corruption.

As Kevin Roose wrote for the NYTimes yesterday:

In any reading, the most unusual thing about Wall Street being challenged by a rowdy band of Redditors is that it took so long to happen. This kind of populist revolt — internet-based insurgents gleefully pulling down the pants of the unsuspecting Boomer establishment — has been happening for years, to many powerful institutions.

In fact, it’s harder to think of a pillar of the global establishment that hasn’t been trampled by a similar stampede in recent years. Book publishers, movie studios, restaurant chains — all of them have, in some way, been forced to cede power to their online critics. Our politics, too, have been transformed by internet activists, with TikTok teens disrupting presidential rallies and Twitch-streaming memelords storming the Capitol.

Memes are more than jokes. This week, we learned that memes can be stocks and that memes can disrupt the economy.

2) When you try to stop the mob, you inflame them.

The noise around WallStreetBets and the war they were waging with hedge fund managers has been percolating for some time, but it really became center-stage material Monday and Tuesday of this week. It was around that point that their movement started to come under more serious scrutiny. By Wednesday night, Discord, a text and voice chat program, banned the server for hate speech and other objectionable content. And the moderators of the subreddit had to take the subreddit offline for a time because the activity was so fast and furious they didn’t have the ability to moderate it effectively.

Eventually, later Wednesday night, Discord brought the WallStreetBets server back online and was offering moderation help as it does for many of its biggest servers. And the moderators for the subreddit also brought the subreddit back online after they figured out how to more efficiently moderate the group.

Though these “takedowns” were actually pretty innocuous and not anti-WSB, the perceived silencing of the group inflamed them going into Thursday, really teeing them up for perhaps the biggest hurdle they would face yet.

Thursday morning, the stock/cryptocurrency trading platform Robinhood disallowed the purchasing of about a dozen securities including GameStop and AMC. Robinhood users who owned these stocks could sell them, but no one could buy any more of those stocks or some of the other “meme stocks” adored by WSB. This is a big deal because Robinhood is the preferred trading platform of far more than half of the WSB users and retail traders who have been warring against Wall Street.

When Robinhood bound the hands of WSB bets on Thursday morning, the war was taken to a level it had not yet seen. Congresswoman Alexandria Ocasio-Cortez, Senator Ted Cruz, Donald Trump, Jr., and a host of other odd allies all united against the actions of Robinhood and said they ought to be investigated for market manipulation immediately.

Robinhood’s actions did cause the stock price to fall, as most WSB buyers weren’t able to buy on Thursday. But after watching the Discord server and the subreddit off and on all day and into the evening, I can tell you: they were just stirred up even more for today, Friday, January 29.

This really speaks to a principle I have held for some time: if you’re dealing with an internet mob, you have to know that trying to stop them will only inflame them more. Whether it’s a group of Twitter users trying to cancel someone or a group of Redditors trying to beat the stock market, when you try to stop a mob bent on their perception of a righteous pursuit of justice, you will embolden them and their cause.

For WallStreetBets, this is not about money anymore. This is about holding hedge fund managers accountable and, for many, getting revenge for the financial crisis of 2008, which upended many of their families. I have seen a significant amount of reasoning based on that, even if it isn’t these hedge fund managers who caused the collapse of the housing market back then.

3) It takes years to build a brand and minutes to destroy one.

Robinhood was founded in 2013 as a way to make trading stocks free and easy for anyone. Its tagline is “Democratizing finance for all.” Robinhood has spent years building trust with both institutional Wall Street and the common-man users it hopes to attract to its platform. Without knowing their private metrics, I think it’s fair to say that 2020 was the best year in Robinhood’s history in terms of activity. The pandemic has led many more people to dabble in the stock market and day trading, which is most easily done by “amateurs” in the Robinhood app.

I can tell you from when I was a fly on the wall within WallStreetBets earlier this week that, prior to their suspicious actions on Thursday, Robinhood was the darling of the amateur trader attempting to fight the hedge funds. Lots of new people were joining the WSB community and when they asked what app they should use to trade, Robinhood was the most common recommendation by far. The company build a lot of trust with the common-man stock trader, and in the last year or so, they have really benefitted from that after years of hard work to get to that point.

When the market opened on Thursday morning and Robinhood informed its users that it would not allow them to buy more of the stock they had been buying hundreds of millions of shares of for the last week, they destroyed their credibility in seconds. Robinhood became public enemy number one on about a half-dozen fronts. As my favorite tweet says, “Each day on Twitter there is one main character. The goal is to never be it.” Robinhood was that main character on Thursday. They destroyed their brand in an instant after building it for years.

This Story Is Far From Over

Today could be the most raucous day on the stock market this week. Robinhood has said they will allow “limited buys” of the stocks they banned on Thursday, which should drive up the price a little bit. Also a lot of WSB users bought “calls” that will be exercised today, driving the price up on at least GameStop and maybe others. Today could really be “D-Day” as many have been calling it in these forums. I was reading the subreddit around 5:30 this morning. One guy cashed out $188,000 of other stock as “fresh powder” for the battle today. Someone replied that they cashed out $35,000. Another $17,000. These guys are bent on fighting hedge funds with all their might, but hopefully not all their money.

And then even after today, there is surely going to be months of legal and Congressional discussion about the events of this week. Multiple lawsuits have already been filed against Robinhood, who apparently had to take out some lines of credit on Thursday.

I have never been more convinced that the internet is truly amazing, for good and for ill. It truly is Babel 2.0, and we can learn so much from what we’re seeing.