Roaring Kitty’s gamification of GameStop is a menace to the market

Lucas Kiely1 hour agoRoaring Kitty’s gamification of GameStop is a menace to the marketKeith Gill — also known as "Roaring Kitty" — has become a hero of the people, but he is also a menace to stable markets.251 Total viewsListen to article 0:00OpinionOwn this piece of crypto historyCollect this article as NFTJoin us on social networksIn terms of entertainment value, the reappearance of vigilante investor Roaring Kitty has been a highlight of the year so far. The enormous volatility and questionable trading it has prompted, though, is not something to be celebrated — indeed, it is a worrying signal.

Kitty, real name Keith Gill, emerged from retirement on May 13, delighting keyboard warriors everywhere and causing a 180% surge in GameStop’s stock, which flew from $17.46 to $48.75 by the close of trading on May 14.

Just a few days later — on May 17 — the firm announced it had sold 45 million shares, capitalizing on the pump to raise nearly $1 billion for the treasury. At the same time, preliminary results predicted losses of between $27 and $37 million for the previous quarter.

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Unsurprisingly, GME stock plummeted by over 30% on the news — the slide limited only by the firm’s decision to announce it on a Friday (unlike crypto, stock markets close for the weekend so Friday is the best day to announce bad news). The following week saw shares continue to bleed until bottoming out at $18.32 by May 23, with some recovery seen toward the end of the month [Source: Google Finance].

Then, on June 6, our feline friend announced he would be holding a livestream the next day. This sent shares soaring 80%, from $26.50 to more than $46, as screenshots of Gill’s portfolio revealing a GME stockpile totaling north of $586 million and some 120,000 short-dated call options at a strike price of $20.

During the livestream, which opened with a video of kittens playing, the bandana- and sunglasses-clad Gill expressed his confidence in the leadership of Ryan Cohen and his “crew.” Meanwhile, hedge funds like Citron Research — which took a 100% loss on a GameStop short during Kitty’s first campaign in 2021 and in Ma announced shorts in the stock again — labeled the stunt an “insult to capital markets."

As all of this was going on, Cohen and his crew happened to be pressing send on those quarterly results — released three days early (and on a Friday), rather than the following Tuesday as previously announced.

These results showed a first-quarter loss of over $32 million, or $0.12 per share compared to the $0.09 expected. They also announced another stock sale that bagged GameStop well over $2 billion in cash thanks to the price spike Kitty’s livestream announcement had prompted.

Unsurprisingly, shares tumbled by over 50% on the report, with extreme volatility that caused the NYSE to suspend trading 38 times after Gill caused a buying frenzy.

Two days later, on June 9, our favorite memester posted a still taken from one of the Batman movies on his X profile, with a cat face replacing the mask the Joker wears just before he holds up a bank. We might imagine Cohen, concurrently, curling up neatly on a $3 billion cash pile that will see GameStop through a nuclear winter.Roaring Kitty posted a still taken from a Batman movie on his X profile on June 9. Source: X

While this is all very amusing — and we all love a Robin Hood character robbing from hedge funds to feed highly indebted college graduates — this gamification of markets is extremely dangerous.

Indeed, questions should — and are — being asked. On June 4, the Massachusetts Secretary of State"s Office announced it would be investigating Mr. Kitty and his GameStop trades, many of which have coincided with the price volatility that his activity has induced. Indeed, it is interesting to note that Gill’s common stockpile has almost doubled since June 7, while his options have vanished.

In crypto, we are used to these sorts of high jinks. However, in traditional finance, similar occurrences are sometimes labeled market manipulation — or insider trading, or fraud.

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It’s OK for meme coins to rise and fall daily in line with the levels of Gatorade consumed by their creators because the losses incurred here are comparatively minuscule. Indeed, with a market cap of $45 billion, the entire meme coin sector doesn’t even account for 1.5% of Microsoft’s market cap.

As the GME fiasco shows, though, the "memeificaton" of stock markets is a much more worrying trend. As analysts have noted, the behavior of this company and its shareholders is madness — you don’t sell stock if you think it"s undervalued, and you don’t buy it if the company is hemorrhaging money.

While no one is shedding a tear for the losses incurred by hedge funds, the volatility Kitty’s cult is causing is disruptive, highlighted by the NYSE’s need to repeatedly halt trading due to frequent volatility. Indeed, such is the risk to markets that the ever-so-ironically named Robinhood investment platform suspended accounts during the 2021 frenzy. Morgan Stanley is also reportedly considering axing an account from its MS E-Trade platform that it spotted on one of Gill’s screenshots (shares of GameStop fell 5% on the news).

Whatever you think about restricting access to markets — and honestly, I would agree it whiffs a bit — the rise of crypto-esque YouTube influencers in the real world is not a positive development. Those getting into Dogecoin make their own beds to lie in, but when traders like Keith Gill can mobilize enough YOLO’ers with a Charles Schwab account to disrupt the real stock market, I certainly don’t sleep soundly.

Many will point to the fact that the Securities and Exchange Commission came up with Bupkis when it investigated the first wave of GME-inspired meme stock trading in 2021, and it may well come up with Bupkis again. If I were Mr. Kitty, though, I would be a little nervous. And if I were a multi-billion-dollar hedge fund or Morgan Stanley, I’d be piqued enough to belabor the point.Lucas Kiely is the chief investment officer for Yield App, where he oversees investment portfolio allocations and leads the expansion of a diversified investment product range. He was previously the chief investment officer at Diginex Asset Management, and a senior trader and managing director at Credit Suisse in Hong Kong, where he managed QIS and Structured Derivatives trading. He was also the head of exotic derivatives at UBS in Australia.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.# Cryptocurrencies# Reddit# Business# Markets# Stocks# Stock Investment# Opinion# Stock ExchangeAdd reaction