It took seven years for Robinhood to develop a trusted brand and it took just one day to destroy that trust.
Earlier today, Robinhood traders were shocked to find they could not trade GME, AMC, and other trendy stocks through their favorite trading app.
Robinhood appeared to block the trading of crowd-favorite stocks like GME. Users were able to sell these stocks without issue, but they were unable to purchase additional shares.
To many, it seemed like a clear issue of price manipulation. Robinhood didn’t like how much money its hedge fund billionaire buddies were losing, so it (and other trading platforms) tried to stop it.
Let’s take a closer look at this story to understand how we got here.
The Story Behind GME, WSB, and Other Trendy Stocks
GameStop (GME) shares have surged to record highs in recent days after unprecedented attention from Reddit’s WallStreetBets (WSB) community.
A few weeks ago, a WSB poster noticed numerous billion-dollar hedge funds had issued huge short-bets against GameStop. Hedge funds had wagered millions that the price of GameStop would drop shortly.
That user decided to fight back, rallying the community to destroy those hedge funds’ short positions.
Nobody expected what happened next.
GameStop stock had gradually grown in value after sitting around $4 throughout 2020. In late 2020, GME stock broke through the $10 mark, surging to $20 in late January.
And then the story went viral. Hedge funds admitted they were facing huge losses because of their ill-timed short bets. WSB users were unrelenting, pouring more money into GME and creating a viral sensation.
By January 14, GME stock was sitting at $40. By January 27, GME surged to $350. At one point on January 28, GME passed $450 per share.
WSB users targeted other stocks, including AMC (for AMC Movie Theaters), BB (for BlackBerry), and NOKI (for Nokia), sending prices of all of these stocks to unprecedented highs.
Some users picked stocks for nostalgia. Others picked stocks for their large short-selling activity. Some picked stocks just because they liked the stock.
Billionaires Fight Back Against GME and WSB
Amidst this unprecedented rise, users were shocked to see some of the biggest tech companies and media platforms rush to defend their billionaire hedge fund buddies.
Media outlets like CNBC and Bloomberg shared “heartbreaking” stories of hedge funds losing millions on their short positions. These media outlets seemed particularly sympathetic towards Melvin Capital and Citron Capital, two of the highest-profile hedge funds that had shorted the trendy stocks.
These media outlets seemed convinced their report would drive users to sell, bursting the bubble and saving their billionaire buddies.
Unfortunately, the opposite occurred: Reddit users noticed that few hedge funds had actually liquidated their positions. So, they decided to buy more.
Users refused to believe the “FUD,” piling more money into GME and pushing the stock even higher.
Robinhood also participated in the defense, appearing to block users from trading GME, AMC, and other trendy stocks.
Approximately 50% of Robinhood users own GME stock. In an instant, Robinhood blocked users from purchasing GME – but allowed users to sell GME. Like CNBC, Robinhood seemed to want markets to crash as users rushed to sell and lock in their gains.
TD Ameritrade and other major trading platforms also appeared to halt the trading of trendy stocks.
Meanwhile, Reddit’s WallStreetBets subreddit temporarily went offline, leading to speculation that Reddit was rising to the defense of hedge funds.
After everything that had happened, it seemed like GME’s legendary rise had come to an end. Corporations and their hedge fund owners had the power to influence markets, block trading, and manipulate trading activity – and they were using this power to protect their corporate overlords.
However, GME stock continued to rise – as did other shares. Even as Robinhood and other platforms appeared to ban trading desperately, WSB was undeterred, continuing to push GME and other stocks to record highs.
Robinhood Faces Class Action Lawsuit
Many users have pointed out the hypocrisy of it all: billionaire hedge funds are freely allowed to trade any stocks they like without consequence, penalty, or halts. They destroyed the economy in 2008 for their own personal gain, faced no consequences, and continue to play their own game by their own rules today.
How can Robinhood and TD Ameritrade ban retail traders from buying stocks they like? How can one company single handedly manipulate markets exclusively to benefit its corporate overlords?
The issue has become so bad that even Ted Cruz and Alexandria Ocasio-Cortez agreed that Robinhood deserved a complete investigation:
Making things look particularly bad for Robinhood is that it’s the leading trading platform for younger investors – many of whom are interested in GME and other trendy stocks.
In fact, it’s estimated that 50% of Robinhood users own at least one GameStop stock.
After users pointed out this hypocrisy, CryptoWhale shared breaking news: Robinhood was facing a class-action lawsuit.
The class-action lawsuit accuses Robinhood of “purposefully, willfully, and knowingly removing the stock “GME” from its trading platform in the midst of an unprecedented stock rise,” depriving retail investors of the ability to invest in the open market. Robinhood’s activity manipulated the open market. The class-action lawsuit was filed in the Southern District of New York.
Some have pointed out the irony of an app named Robinhood protecting its corporate overlords. Robin Hood stole from the rich and gave to the poor – kind of like how GME has stolen from the rich and given to the poor in recent weeks. However, the Robinhood app seems to lack the enthusiasm of its mythological namesake, and that’s why Robinhood is facing a class-action lawsuit.
Hedge Funds Have Lost $70 Billion So Far
There’s good news for people who hate hedge funds and billionaires: hedge funds are genuinely hurting due to GME stock. According to Reuters, hedge funds have lost $70 billion on their short positions in US firms like GameStop in recent weeks. Reuters cited data from Ortex. Ortex data showed that hedge funds had taken loss-making short positions at more than 5,000 US firms in recent weeks.
With GameStop alone, hedge funds have lost $1.03 billion year-to-date. Those shorting Bed, Bath & Beyond lost $600 million. As the price rally continues, losses could reach even higher for hedge funds – especially if retail investors ignore the FUD and keep driving prices up.
What Comes Next?
Robinhood is facing a class-action lawsuit. Other class-action lawsuits could be filed against TD Ameritrade and other trading platforms that have blocked activity.
The good news for people who hate hedge funds is that they appeared to have lost big. Some hedge funds will go bankrupt because of this issue.
Is a trading platform allowed to singlehandedly halt the trading of stocks it decides users shouldn’t buy? Should billionaire hedge funds have such complete control of the media that they can manipulate stock prices with a single interview?
These are all good questions – and they’re all good reasons to buy Bitcoin.
Author: Andrew Tuts