GameStop Mania is a tale about how ordinary retail traders came in unison to take on the Wall Street. The extraordinary event that everyone is talking about symbolizes the power of individual retail investors over institutional investors. In the digital age, where every individual has access to cheap cell phones and the internet, it makes sense to look at what happened with GameStop as a precursor to financial decentralization.
The coterie of Redditors from Reddit forum Wall Street Bets (WSB) who took on the short-selling hedge-funds have captivated the imagination of wall-street. The legion of retail investors has essentially made an exemplary case for decentralization of power and wealth, away from centralized bodies into the hands of ordinary retail investors. Here is what you need to know about the GameStop Mania and how retail investors are using technology to confront the rent-seeking behavior of middlemen like hedge-funs, banks, and brokers.
A financial rebellion instigated by three million members of the Reddit chatroom Wall Street Bets caused a meteoric rise in the GameStop share price by nearly 200% last week. The financially beaten-down company GameStock has reported having lost money in the last five to six quarters. GameStop was a highly targetted company by short-sellers who were betting on share prices of GameStock to fall. Typically short-sellers benefit from a fall in prices of stock that are betting on. The seller borrows a stock and sells it into the market in the hope that they will make money off “a greater fool”. The short seller sells the stock with the intention of buying it back when the price drops. They borrow a stock, sell it, and buy back the stock at a lowered price to settle the stock borrowing while benefitting from the difference. In a short squeeze, however, the short-seller has to settle the borrowing by buying back the stock at a higher price.
The coordinated effort of the retail individual to take on the reckless traders of wall-street who have exploited the financial system at the expense of ordinary retail investors, caused Melvin Capital to close its short position after taking huge losses. What happened with GameStop gives us an insight into what a technology-enabled decentralized market may look like where power is not concentrated in the hands of few institutional investors.
“It is all a part of democratizing the market,” said Quincy Krosby Chief Financial Strategist at Prudential Finance. Blockchain was invented as a peer-to-peer electric payment system designed to be free from the influence or control of rent-seeking entities. Powered by cryptocurrency, blockchain is the future. As quoted by Anthony Sacaramucci from SkyBridge Capital,” the activity of GameStop is more of a proof of a concept that the Bitcoin is going to work.”
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