The return of vigilante investor Roaring Kitty has certainly been an entertaining spectacle this year. However, the extreme volatility and questionable trading it has sparked is cause for concern rather than celebration.
Keith Gill, also known as Kitty, came out of retirement on May 13, bringing joy to online crusaders and causing GameStop’s stock to skyrocket by 180%, from $17.46 to $48.75 by the end of trading on May 14.
Just a few days later, on May 17, GameStop announced the sale of 45 million shares, raising nearly $1 billion for its treasury. However, the company also predicted losses of $27 to $37 million for the previous quarter, which sent the stock plunging by over 30%. The decline was only halted by the timing of the announcement on a Friday when stock markets close for the weekend.
The following week saw GameStop shares continue to decline, hitting a low of $18.32 on May 23, with some recovery toward the end of the month.
On June 6, Kitty announced that he would be hosting a livestream the next day, causing GameStop shares to soar by 80% from $26.50 to over $46. This surge was fueled by screenshots of Gill’s portfolio, revealing his massive GME stockpile worth over $586 million and a large number of short-dated call options.
During the livestream, Gill, dressed in a bandana and sunglasses, expressed his confidence in the leadership of Ryan Cohen and his team. Hedge funds like Citron Research, which suffered a 100% loss on a GameStop short during Kitty’s previous campaign, labeled the livestream a mockery of the capital markets.
Meanwhile, GameStop released its quarterly results three days earlier than planned, revealing a loss of over $32 million in the first quarter, higher than the expected loss of $0.12 per share compared to the estimated $0.09. The company also announced another stock sale, generating over $2 billion in cash thanks to the price surge prompted by Kitty’s livestream.
Unsurprisingly, GameStop shares plummeted by over 50% following the report, causing extreme volatility that led to trading being suspended 38 times on the NYSE.
Two days later, on June 9, Kitty posted a still image from a Batman movie on his X profile, replacing the Joker’s mask with a cat face. This coincided with GameStop’s cash pile reaching $3 billion, ensuring the company’s financial stability.
While these events may be amusing and appealing to those who enjoy the idea of a Robin Hood-like character taking on hedge funds, the gamification of the stock market is a concerning trend. The behavior of GameStop and its shareholders has been labeled as madness by analysts, as selling stock when it’s undervalued and buying it when the company is losing money goes against conventional wisdom.
The volatility caused by Kitty’s cult following is disruptive to the market, as evidenced by the NYSE’s repeated trading halts. The Robinhood investment platform even had to suspend accounts during the 2021 frenzy. Morgan Stanley is also considering closing an account on its MS E-Trade platform after spotting it in one of Gill’s screenshots.
While some may argue against restricting access to markets, the rise of YouTube influencers with a crypto-like influence in the traditional financial world is not a positive development. While those investing in meme coins like Dogecoin bear their own risks, the ability of traders like Keith Gill to mobilize a large number of retail investors to disrupt the stock market is a cause for concern.
The Securities and Exchange Commission’s previous investigation into meme stock trading in 2021 yielded no significant results. However, this time, Mr. Kitty may have reason to be nervous, and hedge funds and institutions like Morgan Stanley may be compelled to take a stand.
Lucas Kiely, Chief Investment Officer for Yield App, raises important questions about the memeification of stock markets and its potential consequences. This article serves as a reminder that the views expressed are the author’s and not necessarily reflective of Cointelegraph.