What happened to GameStop shares at the end of January will be remembered by investors for many years to come. for it was probably the first time in “free market” history that a group of self-described Internet “degenerates” beat a group of Wall Street pros in their own game.
In summary, on Jan. 27, when the Dow Jones Industrial Average fell sharply by more than 2%, in large part because the US Federal Reserve announced its decision to keep rates at 0%. Shares in video game retailer GameStop. (GME) and theater chain AMC Entertainment (AMC) rose 130% and 300%, respectively, increasing their market cap to $ 24 billion and $ 6.74 billion, respectively.
This unprecedented surge was facilitated by a group of small independent traders trading on a subreddit called “r / Wallstreetbets”. They found that executives at New York-based hedge fund Melvin Capital were short selling GameStop stock in order to make a net profit for themselves.
In a nutshell, “Short selling” is a practice on the stock market where a person borrows stocks to sell immediately, hoping to buy them back as soon as they fall in price. The person can then return those shares to the lender, making up the difference between the price at the time of the loan and when the shares were returned.
See this time window A number of Redditors began raising prices for GME and AMC, among other things, which resulted in prices rising more than 2,000% in a matter of days. That made Melvin Capital would arise valued in enormous losses in billions of dollars.
There have been countless similar scenarios in the past that went exactly like this, andThe ones that billionaires competed when they found it was about a large-scale short sale. This time around, however, because an unidentified group of people was able to take such a move, financial services providers like it Robinhood and TD Ameritrade They rediscovered their financial ethics and decided to help Wall Street reduce their losses.
GME’s situation can serve as a game changer for cryptocurrencies
With traditional actions now in front of you “Pump and Dump” scheme of the world of cryptocurrencies, In addition to traditional guardians like Robinhood, who play Big Brother under the guise of “protecting their customers”, Cointelegraph contacted Nikita Ovchinnik, Director of Business Development for 1 inch decentralized exchange aggregator. In his opinion, it’s important to understand that there is a huge difference between traditional pump and dump systems and what happened to GME.
“Robinhood and other companies that prevented them from trading have set a scandalous precedent that will hopefully not be tolerated by the authorities. Users must have full access and control over their assets and decisions at all times. DeFi is the only battle-tested solution on the market that can solve this problem in a transparent way. “
Jason Lau, COO of the OKCoin cryptocurrency exchange, He is glad that this event finally opens everyone’s eyes to the market manipulation that is widespread in today’s so-called free financial markets. “Cryptocurrencies are a completely free market, there are no entry barriers”, added.
Lau also believes such incidents are an example of this why brokers are bad for the financial ecosystem while highlighting the need for greater decentralization. Similar, Vitalis Elkins, The COO of Tradelize, a cryptocurrency trading platform, told Cointelegraph:
“Since 2020, the M1 money supply has increased by nearly $ 3 trillion. This is similar to the amount of money created since the 2008 global financial crisis, but makes up 40% of the total supply of M1 in circulation. […] I think the GME phenomenon isn’t about 15 year olds manipulating the market. It is a protest by the average investor and the financial system that exacerbates inequality and comes very close to the confidence limit (of its users). “
Google and Apple to the rescue
Once Robinhood began preventing amateur traders from taking risks on rising stocks, Hundreds of thousands of disgruntled users have decided to leave a one-star rating for the stock trading app on the Google Play Store and the Apple App Store. As a result, Robinhood’s rating dropped to less than one star almost overnight.
However, on January 29, it emerged that the Google and Apple development teams decided to step in to remove negative reviews and complaints related to Robinhood. and Google stated that before “The ratings and ratings that were designed to manipulate an application’s average rating or top ratings” are against their guidelines. In this way, you can effectively reject your customers’ opinion and send the app’s rating back via the four-star range.
Following this, hordes of users decided again to bombard Robinhood with one-star ratings and send him to a star for the second time within a few days. However, it appears that Google won’t come this time to save the app. Robinhood currently has a four-star rating on Apple’s App Store, but with dizzying negative reviews, that may change anytime soon.
Is DeFi the way out at this intersection?
A conclusion that the cryptocurrency community seems to agree on is that actions by service providers like Robinhood, Public and TD Ameritrade indicate that large amounts of money are reserved only for elites and that the average person cannot or should have hopes of wealth accumulation, especially through the old system. Marie Tatibouet, The marketing director of crypto exchange Gate.io told Cointelegraph: When it comes to decentralized finances:
“Everyone has the freedom to create financial instruments and create their own markets instead of depending on someone else to manage them for them. In addition, DeFi’s financial flexibility with no centralized boundaries for trade, liquidity or market influence provides an ideal platform for the growth of the financial world without having to go through the usual manipulations and unnecessary censorship. “
Yet, Charles Bovaird, Vice President of Content at the consulting firm Quantum Economics, believes that while the recent events with GME and AMC are very interesting to watch, they are not a strong enough argument that DeFi will be the only way out of such situations in the future.
In his opinion, another solution that many in the crypto industry don’t particularly like could be regulatory intervention. Bovaird noted that Treasury Secretary Janet Yellen recently convened the heads of various government agencies, including the Federal Reserve and the Securities and Exchange Commission, to discuss issues such as market capital and asset volatility that may help contain similar episodes in the future. Added:
“Yes, the stock market has been manipulated in some places. So does the cryptocurrency market. While the old system may eventually die and give way to a system that values decentralization and transparency, we don’t have a timeline for such an event. “
In a somewhat similar train of thought Elkins also said that while DeFi is an attempt to “fix” the old financial system, it is not the only way out. He believes DeFi definitely cannot be seen as a decent alternative to the traditional financial system that currently exists. However, he admitted that given the pace at which DeFi is developing, there is hope that use cases for adoption will emerge in the future: “ETH 2.0 is coming and lowering fees may be a small step for humanity, but a big step for DeFi “.
The Gamestop debacle helped put cryptocurrencies in a good place
While it still looks like many people haven’t fully understood the vastness of cryptocurrency technology, many causal investors are now starting to ask questions about how Robinhood could even imagine limiting its users in the first place.
This general issue of financial censorship and exclusion is a major problem in traditional finance and will potentially serve as a gateway for many to learn about decentralized finance. according to Tatibouet activated for cryptocurrencies:
“It is not enough to keep your assets safe now. Everyone should have access to the same financial instruments that the elites have. In the future, finances are not owned by a government, a hedge fund, or a billionaire. This is possible with DeFi. “
In the same way, Ovchinnik believes the GME case will ultimately help the cryptocurrency industry, especially as it will allow investors to see that it is simply impossible for anyone to prevent trading on decentralized exchanges.
Even so, he claimed that blockchain applications could be too complex from a user experience perspective for many new users to understand right away. “It would take at least a couple of years for the current protocols to evolve.” added.