In the past few days, the US stock market's game stock GME has once again staged a short squeeze, as if it had returned to three years ago. At present, this short squeeze has caused short sellers to lose billions of dollars.

Looking back three years ago, a US stock financial KOL named Gill made more than $40 million on GME with $53,000. Here's what happened. In 2019, Gill believed that GME's stock was severely undervalued, so he started buying GME's stock. But at the time, GME was a company in deep financial trouble: it lost more than $80 million that quarter, sales fell 25% year-on-year, and the company was also laying off employees and closing stores, with a bleak outlook.

Due to this terrible situation, many investors are not optimistic about GME, so they short GME stocks in large quantities. Usually, shorting stocks requires borrowing stocks and selling them, and then buying back the stocks on a specified date. If the stock price falls, the short sellers can earn the difference. But if the stock price rises, the short sellers will have to buy back the stocks, which may push up the stock price, thus causing a short squeeze.

In July 2020, Gill discovered that the number of shorted shares of GME reached 150% of the outstanding shares. This means that the outstanding shares in the market are very scarce, and short sellers may face the risk of short squeeze, and there is a chance to make money by going long. As a result, Gill spread this discovery widely, triggering a large number of retail investors to participate in this short squeeze war. Their largest short-selling counterparty is Melvin Capital, a hedge fund famous for short selling.

In January 2021, the famous e-commerce company Chewy announced that it had acquired a stake in GME, and its co-founder joined the GME board of directors. This good news stimulated the market, and more and more retail investors flocked to buy GME shares. The stock price rose by as much as 50% in a single day, and the monthly increase was close to 700%.

Under this surge, the short sellers could no longer bear it. The legendary short-selling fund Citron Research joined in to help Melvin Capital and short-sell together. The participation of Wall Street institutions intensified the long-short "war". On January 27, Melvin Capital announced that it would close its positions and give up short-selling. Within a month, its asset size evaporated by more than 50%, with a loss of up to US$6.8 billion.

This "battle" was hailed as a great victory for retail investors against Wall Street institutions, demonstrating the strength of retail investors to defeat Wall Street giants. This battle made many ordinary investors understand a truth: transactions in the secondary financial market depend not only on the value of the company itself, but also on the scale of funds invested by both long and short parties. Whoever has a larger scale of funds can launch an annihilation war against the other party.

Before 2021, early projects in the crypto market allowed investors to participate in financing and ecosystem construction in the early stages, and when the projects were launched on the secondary market, their diluted market value was only a few hundred million US dollars. Therefore, it is not uncommon to get dozens or even hundreds of times the return in a bull market.

However, since 2022, the primary market of the crypto market has gradually been dominated by institutions and has become a game for big investors. It is difficult for ordinary investors to participate in early financing, and opportunities for ecological construction have become scarce. Investors can only hope to get possible airdrops by "slipping the wool", but this behavior is despised by the project party, calling them "electronic beggars and chain slaves". The circulation rate of the tokens of these projects is very low after they go online, but the diluted market value is as high as billions of dollars, with almost no growth potential. Institutions continue to sell tokens in an attempt to get retail investors to take over, but retail investors not only do not profit from it, but instead become liquidity providers for institutional exits.

Faced with this situation, retail investors gradually stopped taking over and turned their attention to meme coins. These meme coins have a small market value, a high circulation rate, and are not controlled by institutions. According to data from token.unlocks, the tokens of institutionally invested projects will continue to be unlocked and circulated in the next few years. As the market turns bearish, there is simply not enough money to take over, and these tokens can only continue to fall. In this case, there are only two places for funds to go: hoarding Bitcoin or speculating on meme coins.