[manfredo]

I mean, I honestly don't really blame Robinhood's leadership here. This is incompetence, by virtue of having no solid precedent or guidance on what is the right thing to do here.

Gamestop's stock rise was unambiguous market manipulation. Sure, the difference between a single actor driving up a stock and a bunch of random people on the internet doing it is significant. But what isn't ambiguous is that GameStop stock wasn't worth nearly 400 dollars, and whatever was going on was fishy. Maybe this legal because of the decentralized nature of the manipulation, but this was likely unclear at the time. It still seems unclear to this day.

If Robinhood continued to allow trades then they could be accused of being complicit in market manipulation. This was probably unacceptable to them. If they banned buying and selling GME then they'd have shitloads if pissed customers who lost money because Robinhood didn't let them sell. So prohibiting buys but not sales seems like the least-bad action. Yes, it has the effect of downward pressure on the stock. But all of the alternatives were worse.

[iso1631]

> what isn't ambiguous is that GameStop stock wasn't worth nearly 400 dollars

1 bitcoin is worth $50,000 and has less utility. Tesla stock is worth more than every other car company put together, yet I don't see half of global car sales being Tesla.

Are you suggesting that the government should not allow people to freely trade bits of paper between themselves based on your view of how valuable something is?

[mdasen]

> 1 bitcoin is worth $50,000 and has less utility. Tesla stock is worth more than every other car company put together, yet I don't see half of global car sales being Tesla.

I think there's a distinct difference here. Bitcoin believers think that bitcoin is worth that and that it's so important. Tesla believers think that Tesla will take over the world, become the self-driving handle-every-transit-issue company, and become dominant in the power industry as well. I'll throw in that gold is of extremely limited utility (for jewelry and industrial purposes), but people think that's really valuable. Warren Buffet talked about how gold was worth as much as 16 ExxonMobiles plus all the crop land in the US plus a trillion dollars left over. Would you rather have a cube of gold that fits in a baseball infield (68 feet per side) or companies that make stuff. If you had $15T today, would you buy the FAANG + Microsoft and still have $7T burning a hole in your pocket or would you go for the shiny cube!

But people still believe gold has so much value.

That contrasts with GameStop where the dialogue was about forcing someone who had a short position to have to buy the shares to cover their position at a high price and drive the price up further. Most people who invest in gold aren't thinking, "I'm going to make money off the bigger idiot who comes after me". People who believe in Bitcoin aren't thinking they have to hoodwink a bigger idiot into buying them in the future - they're just so awesome! People who are Tesla bulls think Elon Musk is going to change the world and grab all the profits across several industries.

I'm not saying one way or the other that the government should regulate these trades, but there is a big difference. In one case, people genuinely believe in the things they're buying. In the other, they're trying to manipulate or take advantage of something in the system - in this case, that someone was short and could be squeezed if enough people/money went in on the squeeze.

[chii]

> forcing someone who had a short position to have to buy the shares to cover their position at a high price and drive the price up further.

why shouldn't that be allowed? If the person shorting has a demand for the share (to cover their position), they must pay for their demand. They knew this could happen going in, and assumed the risk.

[pid_0]

>Most people who invest in gold aren't thinking, "I'm going to make money off the bigger idiot who comes after me".

Uh... this is literally how any investment works.

[mdavis6890]

No it is not, at all. Investments [are believed to] have intrinsic value that may be realized over time. I DO NOT need to sell an investment to make money on it. It is this belief in enduring value creation that gives an investment its present value, and certainly I can buy or sell the investment at any time based on this present value. Circumstances can change the relationship between the value creation and present value, and give me more opportunities to exit an investment profitably, if I want to.

But an investment is a belief in enduring value creation, not a belief in selling to a greater fool, or selling at all.

This is why (for the most part) gold, currencies and other 'stores of value' ARE NOT investments, in the proper sense.

[pid_0]

>I DO NOT need to sell an investment to make money on it.

You literally cannot make money from an investment without selling it (sans dividends, rent, etc but thats not really what we are talking about)

In the case of BTC and TSLA, people are ONLY buying it because they expect it to go up, and then they will sell to someone "idiot"

[belltaco]

Why does it necessarily have to be an idiot? If you bought a home in 2000, and you sell it today for 4 times the cost to someone that wants to live in it, are they an idiot?

[manfredo]

Bitcoin, and decentralized currencies in general, are a novel thing. They absolutely do have utility, especially when it comes to circumventing government asset transfer controls. Plus, there's a fixed amount of bitcoin that will ever be available. And we're already close to that limit, 80-90% there.

Tesla is a pioneer in the electric vehicles industry. It's in a particularly good position to profit from decarbonization movements.

Gamestop is neither of these things. It's a brick and mortar store that was being made obsolete by digital distribution, and even more so from coronavirus.

Should pump and dumps be legal? That's just reading bits of paper based on people's views of how valuable they are. But nobody serious doubts that pump and dumps schemes are justifiably banned. Yes people should mostly be free to buy and trade as they see fit. But some people are willing to act in bad faith to exploit others.

Was Gamestop's meteoric rise a pump and dump? In part it was a short squeeze, but it also had all the hallmarks of a pump and dump. We keep saying that it was a bunch of internet people getting rich off hedge funds. But the people who were actually getting screwed were the ones who bought in at $100+ a share and lost over half their money. Nobody was ever under any illusion that the stock would remotely stay this high, and people were just hoping to get lucky and sell right before the crash. This isn't the kind of behavior someone wants in the stock market.

[briffle]

>But what isn't ambiguous is that GameStop stock wasn't worth nearly 400 dollars, and whatever was going on was fishy.

Having many people buy a stock after being encouraged also sounds like how the system has worked for decades. How many times has an analyst issued a 'strong buy' recommendation, and the stock then goes up.

[pb7]

>If Robinhood continued to allow trades then they could be accused of being complicit in market manipulation.

They can be accused of anything but that doesn't mean it will hold up under any scrutiny. Brokers aren't obligated to make decisions on market manipulation -- that's the SEC's job, who does it quite poorly as we can see from this episode.

[chii]

Yep - surely a broker cant be a party to manipulation by simply offering their brokerage services!

Stopping the purchases of a share unilaterally, on the other hand, would look like manipulation.

[mattbrewsbytes]

I think there is an element of naivety ON Robinhood with how the clearing house (DTCC) could demand deposit money from RH. I feel like RH might have been bullied to shut down buys on those securities and the absence of the clearing house involved in this hearing is a huge miss.

RH could have done multiple things to avoid this: stopped sign-ups, delayed trades on all new accounts or simply exceeded required deposit ratios so that the clearing house couldn't demand things of them.

There were significant shorts that were essentially unfolding. Ryan Cohen became involved with GameStop and the potential for a new direction of the company possibly raised the price up to the $20-40 range. Over-shorts would have corrected themselves with the skyrocketing price that day and then GME would likely have returned to the $20-40 range it was in prior. That is just things playing out on the market, not manipulation.

Some of the research I've been doing over the past few weeks has revealed that for all retail trading, there are conflicts of interest from the retail broker all the way up the chain to the clearing house. Similar concept in social media where the user is the product. There is a former investment bank trader/portfolio manager that has some videos on this - caveat that he also sells classes now. Search for 'anton kreil retail trading' for some insights.

[manfredo]

New leadership prompting a 5-10x increase in valuation? Dubious. And Robinhood didn't shut down trading at $40. They shut it down in the $300-$400 range. To be frank, anyone that thought this price was driven by people who genuinely thought gamestop was worth that much is just willful ignorance.

There was no good option for Robinhood. Keep trading open? Be complicit in a pump and dump. A pump and dump that may be legal by virtue of the fact that it's decentralized, but it's still a pump and dump and Robinhood probably doesn't want to take it's chances. Ban both buy and sales, and people lose money because they can't sell their positions. This is worse. Doing what they did was the best option. Not a good option, and one that still left a lot of people unhappy. Sometimes the best option is still a bad option, it's just the least-bad option.

[mattbrewsbytes]

A pump and dump is a scheme done on purpose with misleading or exaggerated statements to boost a price while holding a significant amount of shares and then sell the shares at some peak [0]. Wolf of Wall Street got caught with a pump and dump. This wasn't a pump and dump.

When a stock is shorted 140% of its outstanding shares it's simply a supply/demand math problem. Eventually those short positions come due via whoever owns them paying too much interest or a margin call and they have to buy actual shares. This demand for shares makes the stock go temporarily up when there aren't enough shares to go around. This happened with VW in 2008 and they temporarily became the most valued company on the planet via a short squeeze [1]. It is a simple supply/demand market correction.

Retail traders, and I'm certain other large investment firms with huge amounts of capital, tuned into this and bought shares knowing that the situation would resolve itself. There are a half-dozen other stocks with similar but smaller short percentages.

Robinhood is doing the opposite of their name, they give people an outlet to dump their money and risky features to lose it quickly. They have been fined by the SEC [2] for not disclosing revenue sources and "provided inferior trade prices that in aggregate deprived customers of $34.1 million" they take deposits from the ignorant, let them do risky things which give their money to Wall St.

[0] https://www.investopedia.com/terms/p/pumpanddump.asp

[1] https://www.autoweek.com/news/industry-news/a35340727/heres-...

[2] https://www.sec.gov/news/press-release/2020-321

[calmworm]

Why did you write any of this? Nothing factual, all conjecture. It’s as if you don’t know anything about the situation at all and still chose to write hundreds of words on it in multiple replies. I know my reply isn’t in the HN spirit but I’m not going to debate nonsense either.

[nightowl_games]

The value of something is the price at which someone is willing to buy it at. We all know this. Its a basic fact. You cannot draw a conclusion that something "fishy" was going on because the stock was overvalued. People who ascribe any sort of absolute rationality to the stock market are naive at best, and deceptive at worst.

[kryogen1c]

> If they banned buying and selling GME then they'd have shitloads if pissed customers who lost money

this is nonsense and illegal.

RH went insolvent, paused trading for a couple of volatile stocks in the direction that made them more insolvent and allowed the trades that made them less insolvent, and borrowed at least a billion in cash to stay alive.

[MuffinFlavored]

> This is incompetence

Is it? I thought it was just a liquidity issue at the clearing house level. They had to temporarily ban selling. We get it, it benefitted the "evil" hedge funds to the tune of billions. Wildly coincidental to the point that it's being treated as if it was corruption.

But if it really was a liquidity issue at the clearing house level, what could have been done differently? From how I understand it, they were floating people who where long GME on unsettled transactions credit wise. If the entity you have a credit line with says "you're about to be in danger to the terms you agreed upon unless you fix the problem", they simply fixed the problem (stop allowing more people to rack up GME shares on their credit). Sucks but that's the reality.

[manfredo]

I didn't know about any liquidity issues. But of that's the case then yeah, this is just regulatory limits kicking in. Though one could make the argument that they should have banned the sale of all stocks, not just GME, AMC, and other stocks targeted by the reddit short squeeze.

[pb7]

I think Robinhood fucked up greatly here in the eyes of their customers, even if they had no real choice in the matter, but they stopped the buying of a dozen or more stocks (e.g. AAL which was not at all targeted by WSB) that had their reserve requirements increased. I believe normally its in the single digit percent, many of them were increased up to 100%.

[MuffinFlavored]

> I didn't know about any liquidity issues.

Of course not. There were 9,000,000 people in a subreddit convincing each other the stock was headed to the moon getting thousands of upvotes. The real information on what was going on (like the shares short / float metrics being outdated by 15 days) were deeply buried.

[ratsmack]

>liquidity issues

Yes, there was. Robinhood was not meeting the deposit requirements of their clearing house which is why they required a huge cash infusion from Citadel.

[iso1631]

They stopped people with cleared credit from buying stock

[MuffinFlavored]

because they themselves were swamped with 10,000 other users who did not have cleared credit who were buying the stock

[milesdyson_phd]

Every single Robinhood user could have had $5M in cash in their accounts and they still would have had to suspend purchasing shares. Brokerages cannot use client funds for depository requirements. Every purchase transaction required Robinhood to cover 100% with their own cash until settlement.

[raspyberr]

How is it market manipulation to make people aware that more than 100% of a stock has been shorted and thus the shorters are going to be in a real pickle? This was all public information.