[ad_1]
Now it seems that national politics has once again turned into the dismal affair it should be, America needs a new form of mass entertainment, or outrage, depending on your point of view. view. The GameStop this week’s trade fiasco delivered that in spades.
A very brief recap for anyone who’s worked it out: this week, sharing with video game retailer GameStop, AMC Theaters and other struggling brands soared to 400% as hordes of amateur traders coordinated on the Reddit forum r / WallStreetBets, TIC Tac and other online communities to drive up selected stocks – in some cases, making a lot of money in a very short time, while also inflicting substantial financial losses on hedge funds that had taken massive short positions in those stocks .
Subscribe to Daily Crunchbase
As one of the earliest known bubbles, tulip mania – the soaring price of tulip bulbs and the subsequent collapse that swept through Holland from the early to mid 1600s – the r/WallStreetBets The frenzy became a self-fulfilling prophecy, with more and more traders racking up stocks as their peers cheered them on and prices kept rising higher. In the middle of it all, the day-trading app Robin Hood temporarily blocked further purchases of GameStop and other volatile stocks, sparking anger from retail investors as well as some political and business leaders.
As of this writing, Friday afternoon, Wall Street has just closed its worst performance in months and the big financial players are suddenly taking into account the implications of the new “stock meme” phenomenon.
It’s hard not to see the GameStop fiasco as a classic fight between David and Goliath: a bunch of little guys organizing in droves to stick with some of Wall Street’s biggest and most sophisticated gamers.
In the midst of the fray, even the greatest enemies, Rep. Alexandria Ocasio-Cortez and Senator Ted Cruz seemed to agree briefly on this point, Cruz offering her support for AOC comments in which she said she wanted more information on “Robinhood’s decision to prevent retail investors from buying stocks while hedge funds can freely trade the shares as they see fit. (The consensus was short-lived: AOC quickly recalled senator about her role in instigating violence on Capitol Hill earlier this month and said she would work with “almost every other GOP who isn’t trying to get me killed.”)
Chamath Palihapitiya, the billionaire tech investor himself got into action this week, reportedly bought $ 125,000 in GameStop call options, making a quick profit when his bet skyrocketed, then donating $ 500,000 to a fund to help struggling small businesses during the pandemic.
In a meeting with CNBC afterwards, he explained his thoughts on the movement. He had spent hours poring over the r / WallStreetBets forums, he said, and came to this conclusion: “What you are seeing is essentially a crackdown on the establishment in a very important way. … A lot of people, coming out of 2008, took a lot of risk, and they left the retailers (investors) as the holders of the bag. And a lot of those kids were in elementary school or high school when this happened. They lost their homes, their parents lost their jobs and they always wondered, ‘Why were these people bailed out for taking such huge risks and no one showing up to help my family?’ “
You’re here CEO Elon musk also rang, with a word of encouragement to traders on Tuesday: “Gamestonk !!”
As for me, I’m with Chamath, AOC and Elon on this one. Yes, r / WallStreetBets traders can be largely lulz– looking for guys engaging in risky day-trading. Yes, some people will undoubtedly lose their shirts as this roller coaster crashes to Earth. Reddit traders appear to be driven by a dizzying combination of thrill-seeking and profit-seeking, a principled sense of Schadenfreude to stick it to crony capitalists and a melancholy longing for relic brands like GameStop.
But you have to hand it to them: as Chamath also notes, many in the r / WallStreetBets crowd actually do more fundamental financial analysis of companies than many professional analysts whispering in Wall Street ears. Reddit traders were also savvy enough to see that some of the world’s largest hedge funds were being exploited to the max on certain stocks, and they figured out how to organize an army of traders to exploit this vulnerability.
As a result, Melvin Capital, one of the hedge funds that had bypassed GameStop shares, was forced to get a bailout to the tune of $ 2.75 billion other investors. D1 Capital Partners, which is said to be one of the best performing hedge funds of 2020, posted a 20% loss this month as its positions were hammered by day traders, according to Bloomberg reports. Point72 Asset Management, a $ 19 billion hedge fund, has fallen 15% year-to-date, sources told Bloomberg, following stock trading.
Showing a lack of self-awareness, some of the wealthiest on Wall Street were quick to cry foul. Hedge fund billionaire Leon Cooperman went on CNBC to lament angrily the nerve of “people sitting at home, receiving their government checks!” while trading stocks, a privilege apparently reserved for him and his friends in the Hamptons. “It’s just a way to attack the rich!” he shouts.
Another clear loser in all of this: Robinhood, the day-trading app where many Reddit traders trade. The platform sparked outrage among users yesterday when it halted further purchases of GameStop shares and a dozen other volatile stocks. Speculation that the app had done this at least in part at the behest of Wall Street customers further fueled the flames: Robinhood is able to offer free trades to retail users because it generates a large part of its income “order flow”, or the practice of essentially selling information about its user’s trades to hedge funds and other institutional investors before those trades are actually executed.
Robinhood CEO Vlad tenev went on CNBC Thursday to explain the reasons why the company halted trading – “we absolutely did not do this under the direction of a market maker or a hedge fund … The reason we did it is that Robinhood, as a brokerage firm, we have a lot of financial demands, ”he says – but his comments did little to quell the outrage. The company continued to obtain a rapid infusion of billion dollar funding yesterday from previous venture capitalists, including Sequoia Capital and Ribbit Capital to consolidate its balance sheet.
Whatever the real reasons Robinhood ended this trade, the damage to its reputation and business is likely to continue. An $ 11.7 billion unicorn who is heading for a public list of her own, Robinhood has taken as a name a swaggering hero who took from the rich and gave from the poor. All of its activity is based on the (arguably mistaken) notion that the common man should have the same level of access to public markets as sophisticated Wall Street institutions. And yet, this week it has undoubtedly tipped the scales towards the rich and the powerful. It’s hard to see the heroism in this.
Illustration: Dom Guzman
Stay up to date with recent fundraising rounds, acquisitions and more with the Crunchbase Daily.
[ad_2]
Source link
