How WallStreetBets is aligned with crypto — AAX Academy
WallStreetBets, or WSB, is a subreddit where members discuss stock and option trading. The group has become infamous for its aggressive trading strategies and most notably its role in ‘the mother of all short squeezes’ in the ongoing Gamestop short squeeze saga.
While WSB has no particular unified position on crypto, its mission and driving force certainly rhymes with what makes the crypto industry tick and as the group increases membership, it may just provide a bump for crypto as more people learn how financial markets work and what they can do to take control over their finances.
But before we dig into WSB, here’s a quick primer on the Gamestop short squeeze that has captivated financial media around the world.
WallStreetBets targets Gamestop short sellers
Gamestop is a traditional brick-and-mortar seller of games and electronics, operating thousands of stores across malls in the US. The broader shift in retail from offline to online had already been a challenge for the company, and COVID-19 lockdowns only accelerated the impact causing sales to drop and shares along with it. GME stock went from $28 in May 2016 down to $4 in May 2020. It didn’t seem like the company would be able to make the shift towards digital retail, and many large players in Big Finance bet against the company by taking short positions.
And then things got a little crazy.
WSB took notice of Big Finance betting against Gamestop, still a beloved brand in the gaming community and by extension many people in the subreddit. So they bought Gamestop shares, by the legions. In fact, so many retail traders got in on the action that they were able to push the share price all the way to the point where the institutional investors would have to either exit their positions, double down or run the risk of liquidation.
Hedge fund players were losing money on their short positions and many had to buy Gamestop shares just to limit the damages, pushing the stock even higher. By 27 Jan 2021, GME was trading at $347, up 8575% from the price point during May 2020 — which translated to huge losses for the shorts.
On January 28 many retail brokerages including Robinhood halted the buying of Gamestop shares, citing their inability to post sufficient collateral at clearing houses to execute clients’ orders. The decision was swiftly met with criticism and accusations of market manipulation, and a class-action lawsuit has already been filed in the US.
Trading GME has since resumed on most brokerages, but the damage to their reputation will last for a long time, as many customers took to socials media accusing Robinhood and the likes of protecting the interest of Big Finance rather than retail traders.
Scoping out the magnitude of the losses requires more time, but we already know hedge fund manager Melvin Capital is at the center of the pain. They started the year with $12.5 billion in assets under management and are now reportedly down 30%. The fund did get an emergency infusion of $2.75 billion from fellow hedge funds, and they have been able to close out their short positions.
The story of the Gamestop short squeeze is far from over, and in fact the movement is spreading. Other stocks that are heavily shorted have already surfaced in the WSB subreddit, and some retail brokerages have in fact restricted trading to cover some of these companies.
Common ground between WSB and crypto
WSB is a forum inspired by a distrust of the financial system in the aftermath of the 2008 crisis. The community advocates good buys or risky deep-value plays, trying to prevent attempts at manipulation by banning companies with a market capitalization of less than $1 billion.
The forum is also animated by an explicit mistrust of Wall Street. Many of the people in the subreddit suffered early in their careers when the Global Financial Crisis of 2008 unfolded, losing their jobs and money while they saw big banks and institutional investors leveraging the economy making large gains without suffering any of the consequences.
That’s where WSB will find a lot of common ground with crypto veterans. Both communities look at Wall Street and see how for years the institutions have been manipulating the market to keep ordinary people from “making too much money”, while preserving the interest of the wealthy in the top percentile. Wall Street doesn’t want a truly free market to trade, they want it to be one-sided to benefit them.
The restrictions retail brokerages placed on trading activities only served to feed into this notion. WSB did nothing illegal, they just countered hedge funds and won at their own game. Robinhood didn’t like that and punished retail investors for making financially smart choices. Of course, the legality of WSB could still change as lawmakers and regulators are investigating, but most experts have already said there is nothing wrong with people gathering in social networks, advocating for companies, and buying stocks against the direction of Wall Street.
Seeing Big Finance run for the hills during the short squeeze has been met with delight from both WSB and OG Bitcoiners. This short squeeze has shown that WSB wants an open, free and fair market where the big guy doesn’t have an advantage over the little guy. They want justice to be brought on those that run our financial system and aim to maintain the eternal disadvantage of “normal people”.
There are a lot of similarities in what WSB and crypto veterans are fighting for. An alternative financial system that provides everyone with equal access to the means to take control over their own financial wellbeing, with the freedom to trade assets as they see fit, and create their own monetary policies embedded in technology rather than centralized institutions.
It all points towards the good people of WallStreetBets to becoming future Bitcoiners, and as more people join the movement, it spells good times ahead for the crypto industry worldwide.
Originally published at https://academy.aaxpro.com on February 3, 2021.
