Nobody saw it coming. Not the suits at Melvin Capital, not the high-frequency trading bots, and definitely not the financial news anchors who spent years dismissed retail investors as "dumb money." The crazy story part 1 of the GameStop saga isn't just a tale about a dying strip-mall retailer. It’s actually about a glitch in the Matrix of global finance.
Keith Gill sat in his basement. He wore a red headband. He liked the stock.
The Setup You Probably Missed
If you think this started in January 2021, you're late. To really get the crazy story part 1, you have to go back to 2019. GameStop was a carcass. Digital downloads were killing physical discs, and the stock was trading for less than the price of a cheap burrito. Short sellers—big institutional players who bet on a company to fail—were piling in. They didn't just bet against it; they over-leveraged.
They shorted more than 100% of the available shares.
Wait, how is that even possible? It’s called naked shorting, or at least a very aggressive version of re-lending shares. It’s messy. It’s risky. And for a group of bored, hyper-intelligent, and occasionally chaotic Redditors on r/wallstreetbets, it was a giant "kick me" sign taped to the back of the billionaire class.
Michael Burry, the guy from The Big Short, actually paved the way. He bought in early, seeing the value in GameStop’s massive cash reserves and the upcoming console cycle. But while Burry was the spark, the internet was the gasoline.
The Physics of a Short Squeeze
A short squeeze is basically a game of musical chairs where the chairs are made of gold and there's only one left for fifty people. When you short a stock, you borrow shares, sell them, and hope to buy them back cheaper later. But if the price goes up, you're in trouble. You have to buy the shares back at the higher price to close your position.
That buying drives the price even higher.
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Which forces more short sellers to buy.
It’s a feedback loop of pure, unadulterated financial pain. By late 2020, the r/wallstreetbets crowd realized that if they just held the line—if they "diamond handed" their shares—the big funds would eventually have to pay whatever price the "apes" demanded.
DeepFuckingValue and the Power of the Individual
Let’s talk about Keith Gill. Known as Roaring Kitty on YouTube and a much more colorful name on Reddit, he wasn't some high-frequency trader with a Bloomberg Terminal. He was a regular guy with a background in financial analysis who saw something others didn't. He posted his gains (and massive losses) monthly.
People laughed at him. For a long time, he was down hundreds of thousands of dollars. He didn't blink.
His thesis was simple: the market was pricing GameStop for bankruptcy, but the company wasn't actually going bankrupt yet. Ryan Cohen, the founder of Chewy, had stepped in. He wanted to turn GameStop into the Amazon of gaming. The narrative changed from "this company is dead" to "this company is pivoting."
Then came January 2021.
The stock started moving. $20. $40. $80. It was like watching a rocket ship built out of memes and spite.
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The Day the Buy Button Vanished
This is where the crazy story part 1 turns into a conspiracy thriller. On January 28, 2021, GameStop hit an intraday high of nearly $483. People were becoming millionaires in their bedrooms. The "little guy" was winning.
Then, Robinhood and several other brokerages restricted buying.
You could sell, but you couldn't buy. It was unprecedented. The price plummeted because the demand side of the equation was artificially severed. Robinhood claimed it was a liquidity issue—that the clearinghouses demanded billions in collateral they didn't have. Users didn't care. They felt the game was rigged.
Congress got involved. There were hearings. Vlad Tenev, the CEO of Robinhood, became the most hated man on the internet for a month. Even Ken Griffin of Citadel had to testify.
Why It Still Matters Three Years Later
You might think this is old news, but the ripples are still moving through the market. This event changed how the SEC looks at "gamification" of trading. It changed how hedge funds manage risk. They are terrified of "meme stocks" now.
- Retail Power: Individual investors realized that if they aggregate their capital, they can move markets just as well as Goldman Sachs.
- Market Mechanics: The transparency of short interest became a massive talking point, leading to calls for better reporting.
- Cultural Shift: "HODL" and "To the moon" aren't just jokes; they represent a fundamental distrust of the traditional financial system.
The sheer volume of trades during that period broke systems. It wasn't just GameStop. AMC, BlackBerry, and even Bed Bath & Beyond were swept up in the mania. It was a populist uprising that used the tools of capitalism to attack the titans of capitalism.
Lessons for the Modern Investor
Honestly, if you're looking for the crazy story part 1 to teach you something, it’s this: the market can stay irrational longer than you can stay solvent. That’s an old saying, but GameStop proved it on steroids.
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Don't bet the rent money on a meme. A lot of people got rich, but a lot of people also bought at $400 and lost everything when the "buy" button disappeared. The volatility was sickening. If you couldn't stomach a 50% drop in ten minutes, you had no business being there.
Complexity is often a mask for risk. The hedge funds thought they were safe because they were "smart." They forgot that the market is made of people, and people are unpredictable, especially when they're organized on a message board.
Moving Forward with Your Portfolio
To navigate this new world, you've got to be skeptical. Watch the short interest on stocks you like, but don't make it your only metric. Understand the "delta" and "gamma" of options—concepts that were niche four years ago but are now essential for anyone trying to understand why a stock is suddenly vertical.
The best thing you can do is diversify. It's boring. It's not "crazy." But it’s how you survive the next time a headband-wearing YouTuber decides to take on the world.
Audit your own brokerage's terms of service. Know what happens during a liquidity crisis. If you're using a "free" app, remember that you might be the product, not the customer. Use multiple platforms to ensure you aren't locked out when things get heated. Keep a portion of your assets in "boring" index funds to balance out any speculative plays. Most importantly, never underestimate the power of a community with a shared goal and a lot of free time.
The crazy story part 1 ended with a stalemate, but the war for market transparency is far from over.