October 3, 2022

Reddit’s Alexis Ohanian said Thursday that GameStop’s stock trading frenzy, largely driven by the online platform he helped create, marks a turning point in the U.S. investment landscape.

“I think this is a crucial moment. I don’t think we’ll go back to a world before then because these communities are a by-product of the connected internet,” Ohanian said in a Squawk Box interview. “Whether it is one platform or the other, this is the new normal.”

Ohanian said the GameStop Short Squeeze, which increased the video game retailer’s inventory by nearly 2,000% this month alone, shows the disruptive nature of the internet.

“We have now for the past 10 or 15 years, thanks to the rise of social media and all that infrastructure, seen the internet and brought a bottom-up revolution to so many industries,” said Ohanian, who co-founded Reddit in 2005 alongside current CEO Steve Huffman . “We’ve seen this across media, we’ve seen this in so many sectors, and now it’s funded.”

The massive rally in GameStop shares has put financial pressure on the hedge funds that cut the stock. It is an investment strategy in which individuals or institutions sell stocks that they borrow in the hopes of buying them back at a lower rate in the future. You return the number of shares borrowed and pocket the price difference.

Some high profile short sellers have indicated that they have pulled out of their positions in the past few days.

Ohanian said he believes there is one more level beyond just making money for users of online forums like Reddits WallStreetBets. “Just looking at the comments on the internet is very personal to a lot of people, and for Joe and Jane America, the kind of retail buyers of stocks, an opportunity to push back and push these hedge funds back,” he said.

“I really think this is really the beginning of a new era in which we will perceive the public markets and then consumer interaction with them,” said Ohanian, who stepped down from the Reddit board of directors in June and turned to a Black director to replace him.

GameStop’s meteoric rise has troubled some people who say the stock must return to earth. Four months ago it was worth $ 6 a share. It closed the session on Wednesday at $ 347.51 and rose sharply in the pre-market on Thursday.

William Galvin, the leading securities regulator in Massachusetts, told CNBC on Wednesday that retail investors are in “a really difficult situation”.

“They think they are missing out if they don’t bet on them,” he said. “They don’t really understand what they’re doing. I think such small investors, not sophisticated investors, will be affected.”

Ohanian also stressed that retail investors need to be “thoughtful” about how they distribute their money. “There is a very important role in protecting the little man,” he said. “It’s just that so many of these little boys are saying very clearly that they’ve felt pretty vulnerable for so long.”

Billionaire tech investor Chamath Palihapitiya has also defended the right of individual investors to try to push the Wall Street pros around. He briefly joined GameStop retail and donates profits to a small business aid fund.

In a CNBC interview, he noted that one reason Redditors and other online investors turned to GameStop is because more than 100% of their shares have been trimmed, making the stock very susceptible to a brief press. “For a normal person that doesn’t make sense. But for a mathematician on Wall Street, this is the game that was played. And that game was reversed,” Palihapitiya said in Fast Money: Halftime Report.

As GameStop’s shares rose this month, short sellers sought to limit their potential losses by buying shares at the current higher prices. Those measures, combined with an ongoing online hype, have helped take the stock to higher levels.

“I don’t know where this is going from here, other than creating new systems that adapt to this new reality,” Ohanian said.