Throwback Thursday: Same Old Villains Get Clobbered By The New Heroes of The Financial Markets - Redditors

Another story from my archives that vividly illustrated the power of the community. Inspiring story of what can happen when “crazy” people unite to fight and hold the front!

Jun 08, 2023

After writing the stories of PEPE, TURBO and NOTHING (and having all three of them trending as top stories on Hackernoon) I was really looking for a new story equally as good… but unfortunately I couldn’t find anything that was impressive, cool and entertaining enough…

So I dug up my archives and found an old story I wrote at the end of January 2021 to use as a base for this issue. Another great story that vividly illustrated the power of the community. Inspiring story of what can happen when “crazy” people unite to fight and hold the front!

Remember the Gamestop, r/WallStreetBets and RobinHood?

Let’s go back in time!

RobinHood

In 2013 a new startup emerged with the noble mission “to democratize finance for all”.

I wasn't there of course, but I can imagine two young men pouring over their pitch deck, rehearsing the story of how they plan to disrupt the stock market.

Perhaps at this early stage they still weren’t completely sure which arguments would win over investors (probably the same standard and pragmatic promises of fast growth and profit…) but once they’d settled on the right angle, they came looking for potential users.

They quickly established the story which would best resonate with their target audience of retail investors. The company created a brand, and marketed themselves with a powerful range of storytelling tactics that would tap into their future users’ emotions.

They planted a desire in people to enter the financial markets

“We believe the stock market is one of the best available tools for individual wealth creation.

But too few have reaped the benefits of this powerful, economic force. And it’s no wonder why.”

Then showed that the barriers to entry were too high, and after that made the promise to

provide everyone with access to the financial markets, not just the wealthy.

They not only promised to make investing affordable for them, but also friendly, approachable, and understandable.

Now add the brand name, “Robinhood” to reinforce the core story and make it near impossible to resist the temptation to participate, mash it up with a very successful pre-launch campaign, and boom - a waiting list of over 1 mln users materialises even before they go live.

All the above sounds great. We all love stories where the big bad villain is vanquished… but this is NOT a fairy tale.

Fast forward to Jan 2021 - in the middle of what felt like an endless pandemic. Robinhood is now an industry giant, and even offers crypto trading facilities to its considerable user base.

It is here that another story begins to unfold, not entirely like the one Robinhood tells, but very similar indeed.

Hedge Funds vs Gamestop

We have the classic players, of light and dark, those we might see as heroes and those we might paint as villains.

In this particular story Wall Street hedge funds bet against GameStop, a familiar but faltering high street brand, hoping to rake in profits from its terminal decline. Just another tale of financial high jinks, of hedge fund managers profiting from the failure of brick and mortar business, and the hardworking people unfortunate enough to be employed by them.

Funds shorted GameStop. What it means is that they bet that GameStop share price will go down. Basically they “borrowed” a lot of GameStop shares, sold it and planned to buy it back when as they predicted the price would plummet to return them. Now imagine it’s done in massive volumes and the price drop is big - then it’s loads of 0s we’re talking about here. (shhhh spoiler: the price could theoretically move the opposite direction too…)

If not the plot twist it would be the regular story of big guys against little guys, and a seemingly inevitable conclusion in store. After all everyone thought that GameStop was the next Blockbuster with it’s stores being shut down one by one…

r/WallStreetBets

Before that though let’s look into the r/WallStreetBets subreddit. A place where crazy degens gather to talk about investment, their gains and losses and share memes and jokes, etc. Overall an online space with the usual Reddit flavour mixed with big dick energy vibe. The subreddit by that time already had over 1m followers (14M now) watching degens make crazy bets, fool around and just being part of the culture.

One of those crazy people was DeepFuckingValue (DFV) - the original ape who invested over $50k in GameStop. It was big enough bet for people to watch and pay attention and he kept regularly posting about it almost every month… although not many thought that what he’d done was a good idea and his posts did not gain much traction back then.

But…

In August 2020 Ryan Cohen, the founder and former CEO of Chewy started purchasing shares and bought almost 10% of GameStop and that caught attention of redditor JeffAmazon. As a result he did some research and found out that GameStop shares were 140% short interest (it’s possible since shares can be borrowed more than once). Basically higher the percentage bigger the “disaster” for funds if things went wrong.

Now let’s finally get to the plot twist!

JeffAmaZon wrote about his research results with his predictions + informing the participants of r/WallStreetBets that the hedge funds had significantly exposed themselves in shorting GameStop.

His post sounded as inspiring manifesto

The intro:

Sup gamblers. Feel bad about missing the gain train on TSLA? Fear not - something much greater and stupider is here.

You know Citadel? The MM that took all our money today? Well now we finally won’t be at the mercy.

We’re gonna temporarily join forces with the Galactic Empire and hijack the Death Star. Our choice of weapon GME.

Shortly after that Roaring Kitty started live streaming on Youtube and talking about Gamestop and his investment in it a lot. He was charming, fun and knowledgable and the retail degens absolutely loved him.

Eventually the Gamestop topic got traction and trending on Reddit.

The opportunity was seized and the people united. No one wanted to miss the chance of being part of an movement fighting those they all hated so much. It felt like it was a matter of time until it gained enough traction to send the stock “to the moon”!

LFG!

Ryan Cohen got 3 seats on the board and that was another signal for the degens to buy.

They kept buying GameStop shares, and kept buying, and kept buying… price kept rising and rising and rising…and the hedge fund managers started sweating and biting their nails.

This was no longer about getting rich (although people hoped it to be the result too) - it was about something way bigger. And it probably was not so much FOR GameStop but rather AGAINST the villains.

It was such an appealing story and people resonated with it so much that the movement was no longer “stuck” on Reddit - influencers on Instagram, Twitter and Youtube started talking about it.

Elon too did what he loves doing: moved the market with a Tweet. A single tweet with only one word “GameStop”. And that was enough :)

People kept buying, the stock behaved like a memecoin does these days… The whole internet was flooded with content about it.

Mainstream media started covering the topic. That made more people join and the demand of the stock kept rising (with price rise of over 1,700% at ATH)

The giant who had bet on the failure of the little guy started falling. The hedge funds lost tens of billions.

It was a modern-day David and Goliath tale, with the humble David outwitting Goliath. The underdog won. The new breed of plucky Reddit rebels didn’t arm themselves with a sling or rocks; the Robinhood app on their phones had slain the giant just as surely.

The movement triggered a revolution, absorbing all the anger and rage that people felt about a system that works for the big players but not ordinary people. Make no mistake, this was about way more than just money.

Hedge funds were confused - imagine, how can they understand the rational behind the people whose culture is so alien to them and how can they trade against those people who don’t give a shit about value, fundamental analysis and financial principles at all.

A stab in the back

Now let’s go back to Robinhood. The app that enabled people to join the movement with few clicks.

Robinhood’s brand origin story, the values they communicated, the way they marketed themselves and who they claimed they were built for - there should be no doubt about whose side they were on, right?

Think again!

While everyone was watching GameStop’s share price rise, Robinhood restricted trading the stock. Suddenly it was only possible to sell GameStop stocks on the platform, but not to buy them…

Robinhood claimed that they took the decision to “protect the firm and its customers.” But we’ve heard this “protection” story in crypto so many times before haven’t we? In reality we all know who they tried to protect.

Robinhood was marketed on the fairytale of beating the big bad villain… but taking from the rich and sharing with the little guy suddenly became more elusive than ever.

They were basically trying to force people to sell and decrease the price.

It was yet another example of a unicorn that grew thanks to a nice story but showed its real face when it was time to pick a side.

And they did pick the side… and eventually contributed their part to hurting the movement. Oh - and did I say RobinHoods main customer was Citadel? Yup… seems so…

And another oh… All that retail trade activity and volume that happened on RobinHood - well they made a lot of money from it too…

Then they came after the kitty!

Another interesting nuance. When things got serious I guess people were trying to find someone to blame. And they looked at the most influential voices of the movement.

It appeared that Roaring Kitty and DeepFuckingValue (DFV) - the original diamond hand Gamestop ape - were the same person. His name is Keith Gill and it looks like he was actually a licensed securities professional. He was hit with a lawsuit that accused him of misrepresenting himself as an amateur investor and profiting by artificially inflating the price of the stock. But looks like at the end the class action against him was dismissed later on.

Outcome

Just like in any similar story: some made a lot of money by taking profits and many diamond hands eventually lost money but in both cases they were part of a great story. What probably might make them feel good is that they formed a community that drove a movement which was strong enough to make big hedge funds lose billions.

Final thoughts

For many of us it has been quite challenging to explain DeFi. I think now, taking the above situation as an example it will become way easier.

What the above story vividly illustrates is how little control people have over their finances when they are dealing with centralised authorities that may abuse their power anytime they’d choose to do so.

Every time we entrust our money to a centralised institution or platform (be that an exchange, social media platform, etc.) we depend on them. We may not realise it while everything goes well… but once something goes wrong there is nothing we can do about it. You can always play the game, but don’t you dare think of winning.

Our money in the bank “kind of” belongs to us… or at least that’s what many think… but in reality at any point they could restrict your access to it if they decided so.

Your trading account on Robinhood is “kind of” yours… but only if you don’t trade too well. Trade. Don’t win.

Illusion of Freedom?

If only Robinhood was decentralised… right?....

If that were the case, situations like this would not be possible. In that case people would have total control over their finances, their choices and their decisions. They would be able to trade what, where, when and how they want.

And the best part is... there will be no villains to block your path, only a learning curve.

There’s already DeFi working quite well for crypto… too bad one still has dependancy on fiat on and off ramp - all the solutions to which are centralized and regulated. Our main Achilles heel.

Non-Fungible Rebels

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