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The tale of Robinhood, the Twitter Brigade, and the Short Squeeze

In the 13th century, Robin Hood was a highly skilled archer who took from the rich and gave their wealth to the poor. In the 21st century, Robinhood is quite the opposite. The only similar qualities they both have is their famous feather and bold lincoln green color scheme. The Robinhood that has taken over the news this week is the financial service app that allows amateur investors to invest in the market. Our story begins in the final week of January 2021. We hopped that peace and a new sense of kindness and trust would be instilled. We were mistaken.


How this all started

Why is GameStop all of a sudden in the news? It all started a few months back, where a member of "WallStreetBets" has been a huge fan of GameStop for some time. WallStreetBets is a forum on the Reddit site, where thousands of members are advocating good buys or risky deep-value plays. He had been informing the site that he felt the company was on the upturn. They had some cash in hand, it was entering into more online retail, and that it was growing less unprofitable. Things started catching a win, and the stock began to slowly rise.

In the investing world, traditional investors felt that GameStop was a good stock to short. Essentially that means you "borrow" shares you don't own then selling them, this takes place when you feel strongly that the share price will drop. Investors saw the slight increase in GameStop and attempted to short squeeze and predict a fall.

Reddit took notice and went on a tear. “The media would only listen to major hedge funds who had a vested interest in having the price of GameStop decrease", one user proclaimed. Under the WallStreetBets forum, they rallied the retail investors and poured into the stock. The share prices spiked and volatility continued throughout the entire week. The Short-Sellers were in an "oh-crap" moment and were forced to buy the stock themselves, so they could correct their loss and they could guard against any higher prices. This created a flurry of demand, which spiked the price even higher. $GME rose by more than 1,900% since the start of 2021. This week, the short-sellers collectively lost near $5 billion dollars, according to S3 Partners.

Everyone was getting into the frenzy, which created insane volatility. This then transformed into other companies and investors reaping the same benefits in declining companies. Stock prices soared in AMC Theaters, Bed Bath and Beyond, Blackberry, Naked Brands, and Nokia. This is where Robinhood enters in. On Thursday, they released a presser saying that it would be "restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG". They also raised the margin requirements for most certain securities. They claimed this was to help people who didn't know what they were doing, but ultimately it was censorship and limitations. This is where things went south.

Twitter did not take this lightly

Down with the anarchy as Twitter erupted in anger. Everyone who was willing to invest was throwing money into these stock shares. That is where we began to see a "United" States. Well, kinda. There was no red or blue. Politicians were breaking bread with Barstool. Everyone (besides Hedge Fund Managers) were infuriated by the actions of Robinhood. In between all the memes and jokes, shots were fired and Robinhood began to drown.

Why is this big news?

At the end of the day, the common man and woman were trying to make some extra income. That is the whole point of investing, no? Consumers opted for Robinhood compared to other services because anybody could get involved in the world of investing. All credibility and consumer trust has been thrown out the window.

What will tomorrow bring?

The sun will come up, tomorrow. For investors at least. Robinhood took an absolute beating online today. Their mentions were filled with despise, and they tried to fix the huge mess they made. In a statement at the end of markets close, Robinhood said that they would open back the ability to trade the blacklisted stocks, but in a limited capacity. The closing remarks were probably the worst PR move yet.

"To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to."

Frankly, the founders of Robinhood have a lot of explaining to do. An investigation and trial should also follow suit. They already have a lawsuit filed against them.

There is a lot of clean up control needed for the company. Reports are saying that Robinhood has drawn down some of its credit lines with their banks, tapping through several hundred million dollars. An internet meme took down hedge funds and a broker. We are in for a real doozy tomorrow. Buckle up and enjoy the ride. P.S., go DogeCoin!


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