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GameStop has lost over $20 billion in market cap since the Reddit-saga peak

Will Daniel   

GameStop has lost over $20 billion in market cap since the Reddit-saga peak
Stock Market2 min read
  • GameStop has lost over $20 billion in market cap since the peak of the Wall Street Bets saga on January 27.
  • Shares of the video game retailer continue to fall as Reddit traders back down from their short-squeeze attempts.
  • Reddit traders are suing brokerages for limiting trading in popular stocks, arguing it led to significant losses.

GameStop has lost over $20 billion in market cap since the stock's Reddit-saga peak back on January 27th.

Shares in the video game retailer have plummeted around 86% over the past week and a half to under $50 per share on Tuesday. The fall comes as the Reddit retail-trader phenomenon continues to fade, despite consistent posts on the popular Wall Street Bets subreddit urging users to "hold the line".

The Reddit drama began back on January 11, when activist investor and Chewy co-founder Ryan Cohen sent a letter to GameStop decrying the current state of the company and arguing for changes to modernize the brand.

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Then Reddit traders on the r/ WallStreetBets forum realized that GameStop and other companies with high short interest-indicating a large number of bets against their stocks-were susceptible to what's known as a short-squeeze.

A short squeeze occurs when a stock jumps sharply higher due to new investment, forcing short sellers to buy in order to limit their losses, pushing stock prices even higher.

GameStop shares popped after Reddit traders rushed into the name, rising some 1,600% in under a month in one of the largest short-squeezes in history.

The dramatic move saw institutional investors who held short positions in GameStop lose billions in a matter of days, while some Reddit traders saw huge gains.

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The returns for retail investors were so significant that Reddit traders started looking for other short squeeze opportunities. They targeted shares of legacy tech names, AMC movie theatres, and even silver for a while until brokerages stepped in and halted buying in many of the most popular stocks for Reddit traders, citing financial requirements from their clearinghouse.

The move led retail traders to sue, arguing they weren't allowed to close their positions, essentially being forced into losses by their brokers.

For now, it appears the Reddit trader phenomenon is winding down. Shares of the video game retailer broke past the $60 and $50 resistance levels on Monday, leaving little hope for sudden huge gains for anyone who bought the stock at all-time highs.

GameStop traded down 21% on Monday as of 11:14 AM EST, giving the company a market cap of just $3.3 billion.

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