Reddit’s Market ‘Hype Machine’ Is in a Quest to Drive Out Bots

(Bloomberg) -- Before the golden age of memes, there were political cartoons. An old one from the New Yorker is capturing the moment again: On the internet, no one knows you’re a dog.

Or in this case, that you’re a bot. Or a hedge fund trader posing as a Reddit warrior crusading against “the suits.”

The explosive growth of users on WallStreetBets is triggering concern and finger-pointing -- everyone wants to know who is engaging with whom on the site, and why. Some are even wondering aloud whether the recent circus in the market is a road map for U.S. adversaries to meddle in American markets the way they did in politics.

Researchers are investigating whether activity on WallStreetBets was driven by inauthentic accounts after an anonymous spokesperson for the forum told CBS News that there was “a large amount of bot activity in the subreddit” and that posts were being blocked by an automated moderation system.

WallStreetBets has strict requirements -- based on age of account and previous activity on the site -- for users to post, a representative from Reddit told Bloomberg, speaking under the condition of anonymity because of company policy.

Bot or Not

Sorting out who is a bot and who is not isn’t simple. There are multiple explanations for why the automated moderators may remove an account, according to Reddit. For example, the influx of new activity on WallStreetBets means that accounts flagged by the algorithm could simply be new accounts that do not meet the group’s criteria -- or the accounts could be bots.

Experts say that the algorithm may have caught a combination of the two, and the key question is whether a significant portion of the removed content was driven by automated accounts.

The growth in the number of users of WallStreetBets, a rate of change that rivals the returns (positive and negative) of some of the site’s favorite stocks, has complicated the process of policing content on the site. As of Friday, Jan. 22, there were about 2 million users. Now there are more than 8 million.

When the moderators of WallStreetBets took the sub-Reddit private for an hour or so last week, they said it was because a deluge of new participants raised concerns about its ability to police content. Because of the quick growth, they’ve also tightened requirements to submit posts that include blocking content from accounts that are less than 45 days old or those that don’t have enough “karma” -- a reference to the digital accolades users earn by writing posts and comments that others find helpful.

How widespread the bot problem is, and who is unleashing them on the forum, is a question on a lot of minds.

Joining the Club

But it’s clear that the hedge fund industry, which seems to have been taken by surprise by the assault from the Reddit army of traders, is adapting quickly. The Empire very well could strike back. Carson Block, one of the short-seller targeted by Reddit’s army of traders, said yesterday he’s wondering if hedge funds are joining in the trading that has caused short squeezes in many stocks.

And what was once an asymmetrical battle between a few funds and thousands, if not millions, of day-traders could turn into the opposite type of uneven fight -- with deep-pocketed, technologically savvy hedge funds trading against small-money individual traders.

Robintrack, a now-closed service that aggregated the positions of traders on Robinhood, and Swaggystocks.com, which quantifies the sentiment toward stocks on social media, are examples of the type of big-data tools that hedge funds may develop and deploy to analyze the “hype machine” that is Reddit, according to Fabio Salvodelli, adjunct professor at Columbia Business School and former chief investment officer for Merrill Lynch Investment Managers Alternative Strategies.

“Hedge fund managers are developing a far-greater level of insight than certainly there was before,” Salvodelli told Bloomberg Television. And rarely do they get presented with what he calls an opportunity for “damn near perfect gains.”

“So if you’ve got deep enough pockets, they’ll play this,” he said, referring to short interest in GameStop Corp. A fund manager with plenty of capital, he added, can “go short at $300 all day long. And if you can survive the fight, this is not a $150 stock, it’ not a $90 stock, it’s a 30 buck stock, maximum.”

On the internet, in other words, no one can tell which stock is a dog.

©2021 Bloomberg L.P.