If you haven’t been living under a rock these past few days, you’ll have already heard all about GME, AMC, reddit’s wallstreetbets, Melvin Capital, Robinhood, and dogecoin.
For starters, if you have been living under a rock, what’s basically happening is that regular retail traders on r/wallstreetbets are trying to short squeeze Melvin Capital – a billion dollar hedge fund. Melvin Capital’s shorts of Gamestop exceed 100% – meaning that they are shorting more than what the company is even worth. Retail investors on reddit have used the low price of GME to buy in (worth as low as $4 last year!), in an attempt to short squeeze Melvin Capital.
How a short works is simple – basically a company shorts another when they know that the company’s stock is going down, hence why GME was at such a low price. Let’s say I’m company A and I attempt to short company B which has stock B worth $100. I buy 100 shares of stock B at $10000, then I immediately share my rights to all my shares. Knowing that the stock price of stock B will drop, I then buy back shares of stock B and issue them out to the people I sold stock B at $100 a share for, essentially making some profit. A low level explanation, but should be enough to help you understand.
When these millions of traders on reddit began buying stocks such as GME, AMC, BB, NOK (basically companies that have been shorted by hedge funds), these trades are causing the stock price to rise. Which is the very opposite of what these billion dollar hedge funds want these companies’ stock to perform. The hedge funds want these companies’ stock to go down. They are basically being short squeezed by retail investors – being forced to buy back in and close their positions on these stocks (GME, AMC, BB, NOK, etc.) Melvin Capital has lost billions because of this.
I’ve mentioned the stocks, Melvin Capital, and a bit about short squeezes and shorts, but where does Robinhood fall into this and why all the controversy? Well Robinhood is basically the stock exchange platform application that many of these million traders use – due to their low barrier to entry and free commissions. But what they had done is unforgivable – they basically banned purchases of these stocks (GME, AMC, NOK, BB, and such) on 1/28/2021 and allowed limited purchases on 1/29/2021.
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Why would they do such a thing? They claim its to protect individual investors in times of high market volatility, but we all know that is bs. Robinhood was limiting buys to preserve centralization. Centralization meaning money being flown through a regulated exchange (i.e the stock market), but with the movement as of lately regarding traders on wallstreetbets short squeezing billion dollar hedge funds, this is exactly the opposite – decentralization.
Robinhood screwed up big time. They’re protecting centralization, democratizing markets, and probably being incentivized big time by these hedge funds (all on the hush hush). But who knows? I’m just some random guy on the internet right now, but I’m doing my research. What do you think about all this? Really make sure you do as much research as you can and form your own opinions – don’t just blindly follow the opinions of others.
What does all this really mean though? Cryptocurrency is going to boom. All of this madness is starting a shift towards decentralization – where the flow of currency and exchanges are not controlled by some intermediary. There will be exchanges running 24/7 with no middle man. No more going through banks, giving them a cut of the money – being able to transfer funds instantaneously, without the need to pay a “wire transfer” fee.
Short answer to all this? Start buying some crypto – BTC, ETH, and whatever you can get your hands on.