Forty minutes — that is how long it took to hike Polish gaming giant CD Projekt Red stocks by 25 percent, with the help of the market dynamics and possibly a ‘hyperspace’ boost from Elon Musk, GameStop and WallStreetBets.
The stock of CD Projekt Red, the developer of the Cyberpunk video games had been the darling of the Warsaw stock exchange and a favourite of the worldwide investment community, its shares having tripled in value over two years. Problems with console versions of the game and a bar from Sony shop’s sales of the new robo-fantasy game led to a rapid drop in its stock value, with some large investment institutions betting on the further fall in the value of the stock or “shorting” it, after a recent rally.
Then, inspired by WallStreetBets, a Reddit messageboard penny stock investor group, small investors who had managed to outsmart Hedge Funds on the New York markets, small investors seeing the value in CD Projekt flocked to buy its shares, forcing funds to cancel their bets.
The short-of-an-hour phenomenon can be traced back to 2019 when Michael Burry invested USD 12 mln in 3 mln shares of GameStop, an American video game, consumer electronics, and gaming merchandise retailer. The company was deemed close to bankruptcy but Burry looked through the veil of falling stakes and realised that the firm’s situation was largely underrated.
He also found out that funds predicting GameStop’s demise were borrowing 130 percent of shares (shortening), which was less than the actual amount of shares on the market. Burry saw the light and realised this would backfire on speculators.
When the 9th generation gaming consoles came out and Ryan Cohen joined GameStop company board, the interest in the firm soared, particularly when a user by the explicit name DeepFuckingValue from the subreddit of WallStreetBets bragged about a revenue of USD 3 mln as a result of investing USD 53,000 in GameStop.
The funds betting against GameStop, such as Melvin Capital Management, were not happy. Attempts to counteract GameStop’s success streak were made with some results but then WallStreetBets Reddit community came to the rescue.
“Millions of small investors led to the historic spike of GameStop value,” making Melvin Capital Management discontinue shortening the company, meaning, buy back shares, which led to an even greater spike of the price of the GameStop shares. The pro-GameStop movement was supported by Elon Musk, journalist Ana Kasparian, Senator Elizabeth Warren and investor Chamath Palihapitiya,” Gry-Online wrote.
The events from the other side of the Atlantic seemingly inspired European investors to carry out a similar strategy. It so happened that Melvin Capital Management had shares in CD short positions in CD Projekt. Given the current situation, the fund could be forced to sell the shares in order to cover hitherto losses. Melvin Capital and Marshall Wace partially pulled out from shorting two days ago. On Thursday Melvin Capital dropped below 1 percent in terms of shorting, whilst the Eminence Capital fund resigned from so many shorts that it ceased to be visible in the Financial Supervision Authority’s register.
But the tipping point could have been Elon Musk’s promotion of CD Project Red’s Cyberpunk 2077 video game.