The week just ended featured the first organized pump of the social era.
The short squeeze occurred on GameStop stock to the detriment of several speculative hedge funds including Melvin Capital by a group of retailers organized on Reddit, a social platform that aggregates several forums that are called subreddits.
The subreddit that is on everyone’s lips is r/wallstreetbet (WSB) where retailers post trades completed primarily in the stock market.
The first organized pump of the ‘social era catches all Big players in finance unprepared, taking on the romantic connotations of a financial revolution aimed at redistributing money to the destitute masses.
The trading platform favored by redditors has been Robin Hood.
Robin Hood is an ‘APP that allows buying and selling stocks with zero commissions. On January 28, it unilaterally decided to suspend retailers’ purchase of GME securities. There has been much criticism from influential people on the U.S. political scene including Alexandra-Ocasio-Cortez, a member of the Financial Services Committee. Ocasio tweets:
“This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary. “
The first organized pump of the ‘social era we have witnessed, although new to the stock market, is a common phenomenon in the world related to Cryptocurrencies. Pump&Dump groups are born and die all the time promising stellar gains to less shrewd investors. This is because of the low capitalization of many smaller Coins making them easy prey for such manipulation actions. This feeds such a business that is nothing but a meat grinder for the last to jump on the bandwagon.
But the focal point that should give pause for thought is the concept of Decentralization-one of the cornerstones of Crypto Currencies.
In this world, everyone is the master of his or her own capital, and in the fortuitous event that one of the major exchanges decides to adopt a Robin Hood-like measure, the masses will flock to the myriad of decentralized alternatives that exploded during the 2020s. One among them is Uniswap.
The strand of so-called Decentralized Finance (DeFi) is a narrative that is increasingly gaining momentum in the crypto sector. At the moment, however, these are experimental products and absolutely risky if you do not master perfectly the basic concepts of ‘using a Crypto capital.
In addition to the advantages described, decentralization also brings with it burdens and responsibilities for the investor that are often overlooked. In the case of loss of funds, whether by malicious parties or through simple carelessness, there is no third party entity to claim against. There is no such thing as “Customer Service” or toll-free numbers, only a lesson learned the hard way remains.
Many possibilities, many responsibilities then. In this world the golden rule DYOR (Do Your Own Research) applies, do your own research, because if you fail you can only blame yourself.
Is there, therefore, financial freedom without Decentralization?
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