In the past few days, the US stock GME has once again staged a short squeeze, just like three years ago. This short squeeze has now caused billions of short-selling funds to lose. Back three years ago, a US stock financial KOL named Gill earned more than $40 million on GME with $53,000.
Here's what happened. In 2019, Gill felt that GME's stock was severely undervalued, so he started buying GME's stock. But at the time, GME was a junk company in deep financial trouble: it lost more than $80 million that quarter, sales fell 25% year-on-year, layoffs, store closures, and no hope. For such a junk company, many people are not optimistic, so many investors short it. Generally speaking, shorting stocks requires borrowing stocks and selling them, and then buying back stocks on a specified date. If the stock price falls, you can earn the difference.
But if the stock price rises, the short sellers will have to buy the stocks back, which may push up the stock price and cause a short squeeze. In July 2020, Gill discovered that the number of GME shorted shares was 150% of the outstanding shares, which means that there are very few outstanding shares in the market, and short sellers may be at risk of a short squeeze, and there is a chance to make money by going long. So Gill widely disseminated this discovery, triggering a large number of retail investors to participate in this short squeeze, and their largest short counterparty was Melcin Capital, a hedge fund known for short selling.
In January 2021, the famous e-commerce company Chewy announced its investment in GME, and its co-founder joined the GME board of directors. Under the favorable stimulus, more and more retail investors flocked to buy GME stocks, and the stock price rose by up to 50% in a single day, and the monthly increase was close to 700%. Under the surge, the shorts could not bear it, and the legendary short-selling fund Citron provided assistance and shorted together. The participation of Wall Street institutions has made the long-short "war" more and more fierce. On January 27, short Melcin Capital announced the closing of its positions and gave up shorting. The asset size evaporated by more than 50% in one month, with a loss of up to 6.8 billion US dollars. This "battle" was called a great victory of retail investors VS Wall Street institutions at the time: retail investors can also fight against Wall Street giants. This "battle" gave many ordinary investors a popular science: financial secondary market transactions are not based on whether the company itself has value, but on the scale of funds invested by both long and short parties. Whoever has a large scale of funds can launch an annihilation war against the other party's funds. Before 2021, for early projects in the crypto market, investors were able to participate in financing and ecosystem construction in the early stages, and the diluted market value was only hundreds of millions of dollars when the secondary market went online, so a bull market of dozens or even hundreds of times was commonplace.
However, in the crypto market after 2022, institutions dominated the primary market and it became a game for big players. It was difficult for ordinary investors to participate in early financing. The most common way to build an ecosystem was to "scratch the surface" in the hope of obtaining possible airdrops. They were also despised by project parties as "electronic beggars and chain slaves". The circulation rate of tokens online was very low, and the diluted market value was as high as billions of US dollars. There was basically no growth potential. Institutions continued to sell tokens for retail investors to take over. Retail investors did not get any benefits, but instead became the liquidity for institutions to exit. As a result, retail investors no longer took over, just like the collective short squeeze on GME a few years ago. They turned their attention to meme coins, which have a small market value, high circulation rate, and no institutional control.
According to data from token.unlocks, all the project tokens invested by institutions will be unlocked and circulated in the next few years. After the market turns bearish, there is not enough capital to buy in, so the price will continue to fall. At this time, there are only two places for funds to go: hoard BTC or speculate on meme air.
