Reddit’s Alexis Ohanian said on Thursday that GameStop’s stock trading frenzy, originating largely from the online platform he helped create, is a tipping point in the U.S. investment landscape.
“I think this is a seminal moment. I don’t think we are going back to a world before that because these communities are a by-product of the connected Internet,” Ohanian said in an interview with the Squawk Box. “Whether it’s a platform or another, this is the new normal.”
Ohanian said the GameStop’s small squeeze, which increased the video game retailer’s stock by almost 2,000% this month alone, shows the disturbing nature of the Internet.
“We have watched the internet now, for the past 10, 15 years, thanks to the emergence of social media and all this infrastructure, bringing a revolution from the bottom up in many industries,” said Ohanian, co-founder of Reddit in 2005 alongside the current CEO Steve Huffman. “We have seen it all over the media, in so many sectors and now it is happening with finance.”
The sharp rise in GameStop’s shares put financial pressure on the hedge funds that had sold the shares. It is an investment strategy in which people or institutions sell borrowed shares in the hope of repurchasing them at lower prices in the future. They return the number of shares borrowed and pocket the price difference.
Some high profile short sellers have indicated that they have withdrawn their positions in recent days.
Ohanian said he believes there is another layer for the squeeze besides just making money for users of online forums like Reddit’s WallStreetBets. “Just look at the comments on the Internet to see that it is something very personal for many people and a chance for Joe and Jane America, the type of retail stock buyer, to relax and react against these hedge funds,” he said.
“I really think this is really the beginning of a new era in how we are going to perceive public markets and then consumer interaction with them,” said Ohanian, who resigned from Reddit’s board in June and asked for a black Director to replace it.
GameStop’s meteoric rise has raised concerns for some people, who say the action must return to Earth. Just four months ago, it was worth $ 6 per share. It closed Wednesday’s session at $ 347.51 and was firing on Thursday’s premarket.
William Galvin, the main securities regulator in Massachusetts, told CNBC on Wednesday that retail investors are in “a really difficult situation”.
“They think they are losing if they don’t place a bet on them,” he said. “They don’t really understand what they’re doing. I think small investors like these, unsophisticated investors, are going to get hurt by this.”
Ohanian also emphasized the need for retail investors to be “careful” about how they will allocate their money. “There is a very important role to be played in protecting the boy,” he said. “It’s just that many of these little ones are clearly saying that they have felt unprotected for so long.”
Billionaire technology investor Chamath Palihapitiya also defended the right of individual investors to try to push Wall Street professionals. He joined the GameStop trade shortly and is donating profits to a small business aid fund.
In an interview with CNBC, he noted that one of the reasons why Redditors and other online investors focused on GameStop is because more than 100% of their shares had been shorted, making the shares highly susceptible to short squeeze. “For a normal person, it doesn’t make sense. But for a Wall Street mathematician, this is the game that is being played. And the game has been undone,” said Palihapitiya in “Fast Money: Interval Report”.
As GameStop’s shares soared this month, short sellers sought to limit their potential losses by buying shares at current higher prices. These actions, combined with the continued online hype, helped to boost inventory to its high levels.
“I don’t know where this is going from here, unless new systems come in to start adapting to this new reality,” said Ohanian.