Reddit co-founder calls GameStop frenzy a ‘bottom-up revolution,’ shifting power to small investors

Reddit co-founder calls GameStop frenzy a 'bottom-up revolution,' shifting power to small investors

Reddit’s Alexis Ohanian said Thursday that the GameStop stock-trading frenzy, originating in large part on the online platform he helped create, is a turning point in the U.S. investing landscape.

“I do think this is a seminal moment. I don’t think we go back to a world before this because these communities, they’re a byproduct of the connected internet,” Ohanian said in a “Squawk Box” interview. “Whether it’s one platform or another, this is the new normal.”

Ohanian said the GameStop short squeeze, which has fueled the video game retailer’s stock up nearly 2,000% this month alone, shows the disruptive nature of the internet.

“We’ve watched the internet now, over the last 10, 15 years thanks to the rise of social media and all this infrastructure, bring a bottom-up revolution to so many industries,” said Ohanian, who co-founded Reddit in 2005 alongside current CEO Steve Huffman. “We’ve seen this across media, we’ve seen this across so many sectors, and now it’s happening to finance.”

The massive rally in GameStop shares has put financial pressure on the hedge funds that had shorted the stock. It’s an investment strategy in which people or institutions sell borrowed shares in hopes of buying them back lower in the future. They return the borrowed number of shares and pocket the price difference.

Some high-profile short sellers have indicated they had retreated from their positions in recent days.

Ohanian said he believes there’s another layer to the short squeeze beyond just making money for users of online forums such as Reddit’s WallStreetBets. “Just looking at the comments around the internet, it’s something that’s very personal for a lot of people and a chance for Joe and Jane America, the sort of retail buyers of stock, to flex back and push back on these hedge funds,” he said.

“I really do think this is really the start of a new era for how we’re going to perceive the public markets and then the interaction of the consumers with it,” said Ohanian, who resigned from Reddit’s board in June and urged for a Black director to replace him.

GameStop’s meteoric rise has set off concerns for some people, who say the stock has to come back to Earth. Just four months ago, it was worth $6 per share. It closed Wednesday’s session at $347.51 and was soaring in Thursday’s premarket. 

William Galvin, the top securities regulator in Massachusetts, told CNBC on Wednesday that retail investors are in “a really difficult situation.”

“They think they’re missing out if they don’t make a bet on them,” he said. “They don’t really understand what they’re doing. I think small-time investors like that, unsophisticated investors, are going to be hurt by this.” 

Ohanian also stressed the need for retail investors to be “thoughtful” about how they allocate their money. “There’s a very important role to be played for protecting the little guy,” he said. “It’s just that so many of these little guys are saying very clearly that they felt rather unprotected for so long.”

Billionaire tech investor Chamath Palihapitiya has also defended the right of individual investors to try to push around Wall Street pros. He joined the GameStop trade briefly and is donating profits to a small business relief fund.

In a CNBC interview, he noted that one reason why Redditors and other online investors zeroed in on GameStop is because more than 100% of its shares had been shorted, making the stock highly susceptible to a short squeeze. “To a normal person that doesn’t make any sense. But to a Wall Street mathematician, that’s the game that’s been played. And that game came undone,” Palihapitiya said on “Fast Money: Halftime Report.”

As GameStop’s stock rose this month, short sellers sought to limit their potential losses by purchasing stock at the current higher prices. Those actions, combined with continued online hype, have helped propel the stock to its elevated levels.

“I don’t know where this goes from here, other than new systems emerge to start to adapt to this new reality,” Ohanian said.

This article is auto-generated by Algorithm Source: www.cnbc.com

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