As a result, the hedge funds lost their bet. They had to buy new shares at vastly inflated prices to give them back to the investors they had borrowed them from.
The crowd funders of GameStop are claiming a great victory against the short-sellers and the dark forces of capitalism.
Some left-wing theorists associated with the Occupy Wall Street movement of a few years ago say the practice of short-selling is disruptive because companies that are under attack by short-sellers often slash costs and staff to make themselves look more profitable and boost their share prices. Sometimes good companies can be taken over or even close, hurting existing shareholders.
There is also a mainstream debate about whether sharemarket rules such as those around borrowing shares favour short-seller hedge funds over existing shareholders. The Reddit crowd was outraged when, to protect the hedge funds against further rises in price of the shorted stock, trading in GameStop shares via Robinhood was closed down.
Whatever point they think they have made, the do-gooders who saved GameStop from the barbarian short-sellers are heading for a big fall themselves. So many people joined this crusade that the price of GameStop has now jumped 1000 per cent, a level unjustified by its fundamental business. It is almost inevitable the price of GameStop will fall to a tiny fraction of what most of the Robinhood appsters paid.
This content was originally published here.