Unraveling the GameStop ‘Frenzy:’ The Power and Limitations of Reddit

• Reddit’s tight, yet closed, social structure provided an optimal setting to plan the GameStop short squeeze of January 2021.
• However, this same structure became an impediment once the action had begun, preventing even greater spread and ultimately contributing to its disintegration.
• The findings raise several important questions about the role of platforms in aiding or hindering online social movements.

Introduction

Why did Occupy Wall Street succeed in dominating the news for months in 2011, whereas the GameStop short squeeze orchestrated by the Reddit community r/wallstreetbets in 2021 fizzled within a matter of weeks–even though both shared a common mission of mobilizing similar people against financial elites?

A major part of the answer lay in the structure of Reddit itself, according to a recently published study in New Media & Society, one of the top scholarly journals in online communication. In it, authors Michael Vaughan, Johannes B. Gruber, and Ana Ines Langer urge anyone who cares about the success of online movements to be more mindful of the limitations of platforms like Reddit.

Read on to learn more about the GameStop short squeeze, the study’s findings, and what you can do to participate in effective digital activism.

What was the GameStop Short Squeeze of January 2021?

In the early days of 2021, a digital revolution was brewing on the Reddit forum WallStreetBets, a hub for individual investors. The plan was to instigate a “short squeeze:”

• Shorted stock is stock that is bet against by institutional investors. In other words, instead of making more money when the stock goes up and losing money when it goes down, people or organizations who short stock make money when the stock goes down and lose money when it goes up.
• A short squeeze is when shorted stock is bought in large quantities, causing its price to rise. This forces those who bet against the shorted stock to buy more to cover their losses, further driving up the price.

It was a daring strategy, designed to challenge the Wall Street elites by hitting them where it hurts most: their bank accounts. “What’s being accomplished now is what Occupy Wall Street tried and failed to do–a power shift, a shift in some control from Wall Street to Main Street,” declared one of the movement’s founders.

The community chose to boost GameStop, a beleaguered video game retailer with heavily shorted stock. In mid-January 2021, the WallStreetBets community began purchasing GameStop shares in droves:

• As the demand for the shares surged, so did the price, skyrocketing by an incredible 1,600%.
• The WallStreetBets subreddit was flooded with new members, gaining 6 million in just a month.
• This financial shockwave shook Wall Street to its core, causing hedge fund investors like Melvin Capital to suffer billions of dollars in losses.

However, the tide turned on January 28, 2021, when Robinhood, a popular trading app used by many Redditors, controversially halted the purchasing of GameStop shares. This decision, seen by many as a move to protect Wall Street interests, caused a sharp decline in GameStop’s share price.

While some Redditors made significant profits, others who joined late or held onto their shares too long faced substantial losses. The aftermath has been marked by class-action lawsuits and even Congressional hearings against Robinhood–but, to date, little to no consequences for their role in squelching the short squeeze.

Let’s Learn Some New Terms

Vaughan et al. are attempting to analyze the GameStop short squeeze as an instance of digital revolt similar to Occupy Wall Street in 2011. Comparing the two movements and their outcomes, they argue, provides an opportunity to assess how the internet’s role in aiding or hindering protest has evolved in the 10 years between events. To better understand their arguments, we need some background in 3 important concepts they (and other researchers) are using to understand online interactions.

Spotlight: Affordances

In the realm of digital sociology, affordances is a term that refers to the potential actions or behaviors that a digital platform enables or encourages. It’s not just about what a platform allows you to do, but also how it shapes your interactions, your behaviors, and even your thinking.

Consider the different affordances of Reddit and Twitter, two platforms that played key roles in the GameStop short squeeze. Reddit, for instance, is designed to foster deep, threaded conversations within specific communities, or subreddits. This structure encourages detailed discussions and the sharing of niche knowledge, making it an ideal platform for the WallStreetBets community to plan and execute their short squeeze.

On the other hand, Twitter is designed for short, public messages that can be easily shared and amplified. Its affordances encourage the rapid spread of information and the formation of broad, loosely connected networks of users. As a result, during the GameStop short squeeze, Twitter served as a platform for spectators to comment on the event, share news updates, and engage in wider discussions about the implications of the short squeeze.

In essence, the concept of affordances helps us understand how different digital platforms can shape and influence user behavior. It’s a crucial tool for understanding the dynamics of online communities and how digital platforms can enable and shape collective action.

Connective Action

Imagine a world where individuals, despite being scattered across the globe, can unite under a common cause, using digital tools to mobilize and coordinate their actions. This is the essence of connective action. It’s a form of collective action that’s been transformed by the digital age. Rather than relying on traditional organizational structures, connective action is driven by individuals who use digital platforms to create, share, and amplify their messages.

A prime example of connective action is the Occupy Wall Street movement. In 2011, people from all walks of life came together to protest against economic inequality. There was no central leadership or formal organization. Instead, individuals used social media platforms to share their experiences, spread the word, and coordinate protests. They were connected not by a shared membership in an organization but by a shared commitment to a cause.

This is the power of connective action: it allows individuals to bypass traditional power structures and mobilize around shared issues, creating a new form of collective action that’s dynamic, decentralized, and digitally enabled.

Platformisation

Platformisation refers to the increasing influence of digital platforms in our lives. These platforms, like Facebook, Twitter, or Reddit, aren’t just tools we use. They (and their affordances) shape our behaviors, our interactions, and even our societies. They have their own rules, norms, and structures. They influence how we communicate, how we form communities, and how we engage in collective action.

Let’s return to the example of Occupy Wall Street. The movement was largely organized on social media platforms, which played a crucial role in its success. However, these platforms also shaped the movement in significant ways. They determined how information was shared, how individuals connected, and how the movement was perceived by the wider public.

This is the essence of platformisation: it’s not just about using digital platforms, but about how these platforms shape our actions and our societies. It’s a process that’s transforming our world, influencing everything from social movements to financial markets.

The Study

Data and Methods

In the quest to understand the GameStop short squeeze, the researchers embarked on a digital expedition, collecting and analyzing data from three distinct sources: Reddit, Twitter, and traditional news media. Each source offered a unique perspective on the event, allowing the researchers to capture the full spectrum of discourse surrounding the short squeeze:

• Reddit, the birthplace of the short squeeze, was the first stop. The researchers collected posts from the WallStreetBets subreddit, where the plan to buy GameStop shares was hatched and executed. This data provided a window into the heart of the action, revealing the strategies, motivations, and sentiments of the Redditors who were driving the short squeeze.
• Next, the researchers turned to Twitter. As a platform known for its open and public conversations, Twitter offered a broader view of the discourse. The researchers collected tweets that mentioned GameStop, allowing them to capture the reactions and interpretations of a wider audience.
• Finally, the researchers analyzed articles from traditional news media outlets. This data provided a more institutional perspective on the short squeeze, revealing how the event was framed and interpreted by professional journalists.

With the data in hand, the researchers turned to a technique known as topic modelling to make sense of it all. Topic modelling is a type of machine learning that identifies common themes or ‘topics’ in a large collection of documents. The researchers used a specific type of topic modelling known as non-negative matrix factorisation (NMF). This technique is particularly good at handling large and complex datasets, making it an ideal tool for analyzing the vast amount of data collected from Reddit, Twitter, and the news media.

However, topic modelling was only part of the story. To delve deeper into the data, the researchers also conducted a manual content analysis. This involved reading and interpreting the data themselves, allowing them to capture nuances and subtleties that the topic models might have missed.

Results

The results of the study paint a fascinating picture of the GameStop short squeeze, revealing how the event unfolded across three different platforms: Reddit, Twitter, and traditional news media. Each platform, with its unique affordances and user cultures, shaped the discourse in distinct ways, highlighting the tension between connective action and platformisation.

Reddit: The Heart of the Action

On Reddit, the WallStreetBets community was the epicenter of the short squeeze.

• The subreddit’s focus was on coordinating action, with users sharing strategies, encouraging each other to hold onto their shares, and celebrating their victories against Wall Street.
• The discourse was filled with financial jargon and inside jokes, creating a sense of camaraderie and shared purpose among the community members.

However, the researchers found that this discourse was not inclusive for a wider public audience.

• The complex jargon and the subreddit’s unique culture created a barrier to entry, limiting the ability of the movement to spread beyond the WallStreetBets community.

This highlights one of the key tensions identified by the researchers: while the affordances of Reddit enabled a high level of coordination and collective action, they also created boundaries that impeded the broader diffusion of the movement.

Twitter: The Spectators’ Platform

On Twitter, the discourse was more inclusive and communicative:

• Users discussed the short squeeze in broader terms, sharing news updates, commenting on the event, and engaging in wider discussions about its implications.
• The affordances of Twitter, such as the ability to easily share and amplify messages, facilitated the rapid spread of information about the short squeeze.
• However, the researchers found that Twitter users were often positioned as spectators rather than participants. The discourse was less about coordinating action and more about observing and commenting on the event.

This highlights another tension identified by the researchers: while the affordances of Twitter enabled a broad diffusion of the movement, they also positioned users as passive observers rather than active participants.

News Media: The Institutional Perspective

In the traditional news media, the discourse was focused on the institutional dimension of the short squeeze:

• Journalists framed the event as a “frenzy,” often portraying the Redditors as an irrational crowd disrupting the financial markets.
• This framing often positioned the Redditors as a disruptive force, reinforcing the boundaries between the WallStreetBets community and the wider public.
• The news media also focused on the reactions of institutional actors, such as hedge funds and regulators.

This highlights a third tension identified by the researchers: while the affordances of traditional news media enabled a broad diffusion of the movement, they also reinforced the boundaries between the Reddit community and the wider public.

Authors’ Conclusion

By any measure, the GameStop short squeeze was a remarkable display of connective action, with individual investors on Reddit banding together to challenge Wall Street. However, the researchers argue that the event was also shaped by the process of platformisation. The affordances of Reddit, Twitter, and traditional news media influenced how the short squeeze unfolded, shaping the discourse and determining who could participate and how.

The researchers argue that digital platforms can serve as both enablers and barriers in contentious politics.

• On one hand, platforms like Reddit can empower individuals to coordinate action and challenge established power structures.
• On the other hand, the rules and norms of these platforms can also create boundaries that limit the reach and impact of these movements.

This is precisely what happened during the GameStop short squeeze. While the Redditors were able to exert financial power through the short squeeze, their impact on broader discursive systems was limited by the affordances of digital platforms.

The GameStop short squeeze was a unique event, but it may also be a sign of things to come. As digital platforms continue to reshape our societies, they will also reshape how we engage in collective action. Future research will need to continue to explore the tension between connective action and platformisation, the researchers argue. By understanding the dynamics of events like the GameStop short squeeze, we can gain a deeper understanding of the possibilities and challenges of contentious politics in the digital age.

What Can You Do to Engage in Effective Digital Activism?

Speaking as a longtime researcher of digital technologies myself, the pattern has been for new technologies to be seen as emancipatory and potentially game-changing upon their release, affording many new strategies for social movements. However, after a few years, it becomes increasingly clear that the use of new technologies is no panacea, and many of the same difficulties of exclusively offline movements remain.

This has been the case with social media. The near-simultaneous eruption of the Tea Party, Arab Spring, and Occupy Wall Street in the early 2010s seemed to augur a new era of digitally-enhanced protest. Today, however, despite the success of online movements such as Black Lives Matter and Me Too, scholars are much more likely to emphasize that there are considerable downsides as well.

A 2020 article by Neal Caren, Kenneth T. Andrews, and Todd Lu in the Annual Review of Sociology divides the literature on digital activism in the current era into 3 major categories, corresponding to the 3 major ways social media has been mobilized by movement participants:

• Recruitment: Mobilizing participants for online or offline actions
• Messaging: Spreading sympathetic news and perspectives while resisting oppositional or mainstream framings
• Community: Providing a space for community and collective identity work

This provides an interesting framework in which to analyze the GameStop short squeeze. WallStreetBets excelled at the latter two functions, but was not successful enough at the first task to overcome the combined might of (1) mainstream journalists sympathetic to wealthy investors, and (2) Robinhood’s unilateral decision to ban GameStop trading through its platform.

• While it’s not necessary for one platform to fill all 3 functions, digital activists should be aware that all 3 must be met somehow.
• Therefore, if a platform cannot carry out all 3 adequately, activists must figure out a different way of accomplishing it.

In the case of the GameStop short squeeze, WallStreetBets became a too-closed social environment due to its exclusive jargon and jokes. Attempts to recruit on Twitter may have been successful to a certain extent, but because Twitter users found themselves situated as bystanders, Twitter became a space in which the movement was watched rather than actively participated in. As a result, when the mainstream media took a critical stance against WallStreetBets, there were not enough public spaces outside of WallStreetBets itself in which movement participants could resist those derogatory framings.

Did you participate in the GameStop short squeeze or follow it closely on Reddit? What strategies do you think are most effective for digital activism, especially in movements like the GameStop short squeeze? Discuss in the comments.

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