Nothing in this article constitutes financial advice. This is a technological evaluation of recent events. I am taking no legal, financial, or ethical stance on these events.

GameStop: Reddit vs The Establishment

Institutional investors (hedge funds) decided to “short” GameStop. Shorting a stock is betting that it will lose. Most of the time, when you gamble on something, you’re going to try and bet on the winner. Shorting, in essence, is betting on losers. Simple.

Reddit caught wind of this gamble by hedge funds. There’s a catch: if the stock doesn’t lose, the hedge funds are out a lot of money. Reddit decided to bid up the price so that the hedge funds would lose their bets. It seems to have worked.

Melvin Capital, one of the major hedge funds involved, reportedly lost 53% in January. I do not have primary sources on that so take it with a grain of salt. So what happened to that money? Anyone who made money on GameStop in January likely benefitted from Melvin Capital’s losses.

Reddit, however, is not a monolithic entity. Reddit is a website driven by user content. Reddit just so happens to be the platform on which most of the organization of this scheme occurred. Other platforms were involved, such as Discord and likely many other private messaging platforms. I have no idea if this represents legal exposure to Reddit. Time will tell.

I suspect the SEC does not have unilateral authority to go after Reddit due to existing Internet protections. Congress, however, might amend those laws now that it has been proven that literally billions of dollars are on the line. Again, time will tell.

The Swarm

Reddit was merely the most publicly visible face of this movement. The movement, however, was composed of millions of individuals. These individuals spontaneously decided to get involved and, without any central leadership, concocted a plan.

The idea of decentralized leadership has been a topic of study for a long time. In the animal kingdom, hive insects such as ants and bees can make complex decisions with no central authority or planning committee. Humans, however, have developed structured methods of making decisions, from command structures to democratic voting.

The Internet presents a unique opportunity for spontaneous organization. These knots of organization emerge when there is consensus amongst enough individuals.

The Laughing Man

The Laughing Man was a plot arc in a TV show called Ghost in the Shell. This show takes place in an imagined cyberpunk future and follows an elite counter-terrorism squad called Section 9. In the first season of this show, Section 9 investigates a series of seemingly unrelated crimes.

These unrelated crimes all have one thing in common: they make reference to The Laughing Man. The Laughing Man originated during a single event where a CEO of a pharmaceutical company was held hostage in public. The attacker hacked into news feeds and replaced his face with The Laughing Man logo.

Due to the broad audience, the image of The Laughing Man created a meme. It should be noted that Ghost in the Shell was released before the concept of internet memes was broadly known. The Laughing Man meme became an avatar around the idea of anger against corruption of Big Pharma.

Internet forums and chatrooms - much like Reddit - got ahold of the idea of The Laughing Man and ran away with speculation and conspiracy theories. Over time, participants in the discussions arrived at a consensus about who and what The Laughing Man was. This consensus ultimately resulted in copycats.

Copycats emerged spontaneously even though the original idea had faded. The original participant was long gone. Philosophically, the show concludes that The Laughing Man phenomenon was a series of copies without a true original - a Stand Alone Complex.

Copycats without an original

It’s entirely possible that the idea of bidding up GameStop is a real-life example of a Stand Alone Complex. It was an idea that emerged spontaneously and evolved, gaining more and more copycats. In this case, the lure was easy access to money. This creates a lot of intrinsic motivation for copycats and participants to join.