The most infamous retail trader is back to shake up the market
The First Domino: Roaring Kitty's Revelation
A sequel to the movie “Dumb Money” is currently in the making as GameStop and its strongest activist investor is making headlines again.
The price of GameStop stock surged dramatically in January 2021 on the back of retail investors on the r/WallStreetBets subreddit. Most of it was that of Keith Gill, also known as "Roaring Kitty" on YouTube, who had been one of the most prominent backers of GameStop for months. His argument and enthusiasm were the most significant driving force behind the buying spree. The sharp price increase resulted in a short squeeze that caused heavy losses to hedge funds that had taken positions against the stock. This had a more general meaning and spotlighted the power of retail investors, hence receiving quite a bit of media attention.
In early June 2024, GameStop’s stock experienced an increase in volatility. On June 2, Roaring Kitty returned to Twitter, igniting excitement on r/Superstonk with a major increase in his GameStop holdings, totaling over $300 million. This led to significant price movements and trading halts. Short interest surged, and corporate media and key figures like Larry Cheng commented on the situation, indicating the short sellers may be on the wrong side of this bet. Citron Research re-entered the shorting game and quickly changed its mind, and Gary Gensler discussed the events on CNBC. Overall, the week saw heightened activity and anticipation among investors and the community.
After Gill made a dramatic comeback on Twitter, he began posting a series of cryptic memes to his cult-like following on the platform. While Roaring Kitty’s strategy may be weird and esoteric, he is more crafty than most market participants give him credit for. Based on his content and the previous events that occurred in 2021, Gill may be motivated by not just making money, but by exposing the inefficiencies and manipulation that occur in public markets, particularly to the detriment of retail investors.
On June 7th, Roaring Kitty made a highly anticipated appearance on his YouTube live stream to discuss his view on GameStop. With a big bandage on his head, flashy white sunglasses, a sling, and a beer, Gill recorded live with Yahoo! Finance’s GameStop stock ticker in the background. As explained in BowTiedBull’s analysis of the live stream, not only did he not show much emotion as the price showed strong volatility during the stream, but he also was wearing a joke outfit mockingly to imply that he would be “getting hurt” due to the price movement of the stock. While many people thought that the live stream would be used as a way to help pump the stock, it seems as if Gill was only excited and showing emotions when the GameStop stock was halted from trading, which happened multiple times during the stream.
It’s likely Gill was using the live stream to attract short sellers into GameStop as a way to set up the stock for another short squeeze. This is evident by the lack of emotion he shows while the stock falls, along with his irregular costume.
BowTiedBull helps decode the cryptic memes that Gill posted on his X account that explain his short squeeze plan and how there is likely a third party that will help Gill implement the strategy. The plan includes the recent 75 million equity share issuance that was unexpectedly announced in its first-quarter fiscal 2024 report before the bell Friday. It’s possible that these newly issued 75 million shares may not be available to trade on an exchange because the shares were sold in a private transaction to a third party part of Gill’s plan. This would create a scenario where investors are taking naked short positions without even realizing it. As seen in the initial GameStop short squeeze in 2021, naked short selling creates the perfect backdrop for a short squeeze to take place, especially when the float is expected to be higher.
Another theory is that GameStop will take the billions of cash on its balance sheet from its recent equity raises and use it to acquire digital assets to help the stock rally. This was a proven strategy after Semler Scientific stock gained over 25% after adding Bitcoin on its balance sheet. This theory is less likely to be true however because it would put Gill under more scrutiny for insider trading.
While the mysterious memes that Gill have posted indicate one of these theories to be true, it’s still a developing situation and there is no way to truly read what Gill and the GameStop team is planning until after their plan is already executed. If either theory is proven correct, this will cause the stock of GameStop to rise violently and force a second major short squeeze for the stock. The first occurrence exposed the holes and faults within our current public market infrastructure and clearing system so much to the point where RobinHood had to halt the trading of the stock on its platform. If Gill succeeds again, this will likely bring the house of cards down and reveal to the public just how vulnerable the current system is.
This wouldn’t be the first time a short squeeze caused issues in our clearing system. If we look at the Dole case in 2015, naked short selling played a significant role by creating an artificial excess of shares. Naked short sellers sold shares they didn't actually own or borrow, increasing the apparent supply of Dole stock by ~33%. This artificially lowered the stock price, contributing to the undervaluation. When the court ruled against Dole's executives for manipulating the stock's value, the true scarcity of shares was revealed, causing a rapid price increase as short sellers scrambled to cover their positions, leading to the short squeeze.
Both the GameStop and Dole cases underscore the need for new technological infrastructure in the public equity markets. The current institutions recognize this and are attempting to step up their game recently with the transition to T+1 settlement. However the investors know the true solution to this issue is integrating blockchain technology into our systems to facilitate trustless and decentralized execution at higher speeds and a fraction of the costs. Major players in the market recognizing this include Blackrock and Citadel, which have recently announced its launch of a blockchain enabled securities exchange based in Texas.
In order for the old systems to be replaced, there is usually a black-swan event needed to facilitate the change. Gill is poised to orchestrate this black-swan event in a meticulous way to expose the faults within our current system, while also letting retail investors gain a rare win in the process.
Resources:
FX Street - GameStop stock gets slammed by early earnings release, 75 million share sale
SEC - Staff Report on Equity and Options Market Structure Conditions in Early 2021
CNN - GameStop meme lord behind stock’s wild moves reveals himself after three years
CNN - Wall Street is putting its foot down as ‘Roaring Kitty’ strikes again