The Social Media Report #15

A look at the week's news at the intersection of social media and society

In this edition we take a look at the impact of social media on financial markets, with the Reddit revolution that shook Wall Street and the wider impact that has reverberated around Silicon Valley and capital markets alike.

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The week in review

The week social media shook the markets. The story of the week has been that of Reddit and its Wall Street Bets thread, now with 6.3m followers, and the impact it has made on on the financial markets. What happened here can be summed up very simply. A collective on Reddit which spend their days taking about stocks and shares decided to invest in some of their most cherished brands, such as video game store GameStop, because they found out that a hedge fund called Melvin Capital was betting big on their demise.

If enough small bets could be made on companies like GameStop by the Reddit revolution, not only could it be saved from bankruptcy, but the self-proclaimed ‘degenerates’ of Reddit could put Melvin Capital out of business in the process. Redditors said this was as much making a stand as it was paying the rent. But the impact was so great that this weekend’s Financial Times cover story, for the third day running, was on the have-a-go traders who took on Wall Street.

Watchdogs and senators wade in: the issue has become contentious. Should this be allowed? Should members of a social network be allowed to discuss buying a stock en masse? Especially when it can impact markets and hedge funds to such an extent? The main stock that this focused on, GameStop, rose from $70 to $470 per share in a matter of days. It then dropped to $130, a staggering $11bn. The hedge fund Melvin Capital lost over $3bn and had to seek a bailout from its competitors. The trading platform Robinhood had to restrict trades and itself seek a $1bn bailout. And now the SEC is investigating.

Senator AOC, Alexandria Ocasio-Cortez, then waded in (watch her live stream on Twitch). She’s calling for a probe into the market’s response, defending social media movement. While the Wall Street Bets subreddit grew from 2.4m members at the beginning of last week to 3x the size at over 7.1m now, many have called for regulation of social media in a way that would lessen its impact on the markets. But, as reported above in the FT, watchdogs are moving to defend the web.

Spilling over, Facebook also pulls the plug: now Facebook has chosen to intervene by deleting high profile and sizeable groups discussing similar topics to those which drive the Reddit surge. Strangely, Facebook did not delete the 157,000-strong group for stock market related reasons, which seems very strange. The move has raised serious questions over not only the power of the collective user base of social media forums and groups, but of financial markets’ ability to withstand such a simple issue as this.

Regulation around the corner: on Monday February 1st, we will see a major hearing of social media companies in Europe, and with the last year mainly being about competitive practices and political interference, financial markets have been largely off the radar. But things certainly will change, and pressure will be on law makers from the markets to gain protection from the likes of Reddit and wider social media swells such as this. What happens next will expose both institutional preparedness for the speed and scale of social media, and just how far the ‘degenerates’ will go.


My must reads from this week

On to the most interesting stories that I have been reading this week.

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The Social Media Report is written by Drew Benvie, founder & CEO of Battenhall, The Drum, CIPR and GDXA’s social media consultancy of the year 2020.

You can follow The Social Media Report on Twitter at @TheSMReport. Suggestions for stories can be emailed to db@battenhall.com.

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