Robbing The Poor To Give To The Rich?

Robinhood GameStop robbery reveals fallacy of “free” market

Shockwaves are currently rippling through Wall Street where some of its biggest hedge funds are bleeding billions of dollars from failed short positions due to a campaign waged against them by members of the Reddit community WallStreetBets. The weapon of choice for this is a US company called GameStop, shares in which have risen more than 5,000% over the past year to trade at around $193, making highs of over $400 earlier in the week.

WallStreetBets, a Reddit forum that seeks out cheap stocks to invest in, picked-up on brick and mortar video game retailer GameStop in 2019 when founding member DeepFuckingValue poured $53,000 into it, hot on the heels of a multi million dollar investment by Ryan Cohen, founder of online pet store Chewy. This, and other positive influences and indicators, led to a steady increase in the stock price over 2020, which went from around $4 per share in January 2020 to around $17 by December 2020.

Hedge funds make a bad bet

This was much to the chagrin of hedge fund Melvin Capital Management, which had opened a multi-million dollar short position on GameStop (effectively betting the stock would fall in price) alongside other funds including Citron Research. These and other short sellers faced increasing pressure as the stock increased in price. This is primarily because the stock was over-shorted, meaning there were more short positions than shares available, leaving many funds unable to close their loss-making positions.

The discovery of this situation was the trigger for a hyperbolic rally in GameStop stock. By pumping the value of GameStop, WallStreetBets users knew they could force these hedge funds (which they really, really hate) into a “short squeeze” whereby the hedgies had to buy the stock to cover their loss-making shorts. This sent the stock rocketing from $43 on 21 January to a high of $469 on 28 January, with data from analytics firm Ortex showing that, as of Wednesday, shorts on GameStop has led to estimated losses of $1.03 billion year-to-date.

Oh no you don’t, WallStreetBets

So far, so great. Retail investors were taking back control of a Wall Street trade at the expense of some bloated fat cats. Even better, then, that the majority of this trading was happening through Robinhood, the retail investor app so named for its ambition to democratize the stock market: “Let the people trade” is the firm’s mantra. One WallStreetBets subreddit user summed up the mood of the community on Thursday (28 January) thus: “FOR ALL THE BIG FU**ING HEDGE FUNDS MONITORING US, THIS IS A MESSAGE FROM US TO YOU, WE FU**ING OWN YOU NOW, F**K. YOU […] F**K YOU MELVIN CAPITAL. F**K YOU CITRON RESEARCH. YOU HAVENT CLOSED SHIT.”

The problem is, though, that one of Robinhood’s biggest customers (darkpool arrangement) is Citadel, who pumped $2.75 billion into Melvin Capital Management on Monday (25 January) to shore it up in the face of all these short losses. According to a June report from the Financial Times covered on Cointelegraph, $39 million of Robinhood’s revenues came from Citadel Securities, owned by Citadel, which then represented more than 35% of the trading app’s revenues. As such, on Thursday (28 January) Robinhood suspended buying of GameStop on its platform, even closing out some users without their consent. GameStop stock has subsequently sunk 44% over the past 24 hours. Melvin will no doubt be relieved.

Robbing from the poor to feed the rich

It’s not just GameStop, either. Restating its mission to give “everyday people” a platform for “long-term investment”, on Thursday Robinhood said its users would also not be able to buy new shares of AMC Entertainment, Nokia, Naked Brand Group, Koss Corporation, Express, BlackBerry or Bed Bath & Beyond. These are all stocks that have been targeted by WallStreetBets in its war against hedge funds (incidentally, Ortex also reported that short sellers have lost $600 million on Bed Bath & Beyond so far this year). The trading app later added American Airlines, Sundial Growers, Tootsie Roll Industries and Trivago ND to its list thanks to increased retail buying. This was, it said, in order to manage “volatility.”

Robinhood’s move has caused widespread outrage, with characters as diverse as democratic congresswoman Alexandria Ocasio-Cortez (aka AOC), Donald Trump Jr, Elon Musk and rapper Ja Rule calling for heads to roll at Robinhood. Founder of DDTG capital Dave Portnoy released an expletive laden video via twitter calling for jail time for the company’s founders. Meanwhile, Wall Street Bets is vibrating with memes calling for its members to ‘hold’ GameStop while listing all the European brokers you can still buy the stock with.

A rigged game against retail

While indignation against Robinhood is righteous, however, it would be a mistake to see this as a story with only one villain (or perhaps three, if you count Melvin and Citadel). Indeed, on Thursday the New York Stock Exchange (NYSE) also suspended trading for GameStop and AMC, while fellow broker TD Ameritrade restricted the margins available on GameStop (though it did not ban buying). Meanwhile new Treasury Secretary Janet Yellen was publicly expressing her “concern” over the situation, which is perhaps not surprising considering she was paid $810,000 by Citadel for speaking at three events in 2019 and 2020.

No: what this incident underlines is the level of corruption rampant in the “free market”. Indeed, we are truly through the looking glass when “Wolf of Wall Street” Jordan Belfort is telling CNN that WallStreetBets traders are behaving dangerously. All of it underlines the primacy of the interests of hedge funds and institutions that made millions from the 2008/09 financial crisis and that continue to benefit from it as money printing impoverishes citizens while they get fatter and fatter on central bank cash. It underlines how, in “traditional finance” the house-always-wins.

Come join DeFi, the only true free market, its inevitable

Most importantly, however, this incident underlines the fact that — without exception — the only truly free financial market is the crypto economy. An area, like WallStreetBets, once laughed at by those in traditional finance, crypto’s market cap now stands at $1.1 Trillion with interest growing in every corner of the world. And it’s not just Bitcoin, either. Decentralized finance, or “DeFi”, where users can buy and hold tokens to generate yield (long gone are such days in traditional finance with negative interest rates) as well as borrow, lend and trade on decentralized protocols free of any form of central control or manipulation. Transparent products that make it easy for everyone to access DeFi, just like the YOP platform.

From a market of just $600 million in January 2020, total value locked in DeFi now stands at $26 billion. This is because, unlike Robinhood, DeFi is giving “everyday people” exactly what they want and need: access to free, fair and transparent wealth creation. If you want to participate in a market free of unashamed institutional corruption, you should come and join the growing movement of people banking, saving, investing and trading on the blockchain through DeFi. We have transparency, growing liquidity and a market that nobody can pull the switch. No phone call stops trading here. This is the only truly democratic market where, a central institute cannot rob you of your tokens when stored in your own wallet. And so, take this as an open invitation, WallStreetBets: come to DeFi and join the real financial revolution with YOP. Our platform is non-custodial and YOU control your funds. The case for DeFi can never have been stronger than today.

The mission at YOP is simple. To enable easy access with a clean UX/UI and wide variety of technology integrations. Giving the customer transparent access to a huge suite of decentralised finance products. See market data, swap your tokens, hold them in the wallet, deposit into DeFi contracts and follow your portfolio on the dashboard.

We look forward to sharing our first live product demo in the coming days and announcing more exciting developments at YOP. The current climate has just accelerated the shift from CeFi to DeFi, and we are ready for lift off. 🚀

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