GameStop (GME) Saga Signals 'Democratization' of Banking
The so-called Reddit rally propping the stocks of GameStop Corp. (GME), AMC Entertainment Holdings, Inc. (AMC), and other companies has been portrayed as a David vs. Goliath battle, with amateur traders taking on the professional investors and big money in a moment of satisfying revenge. This narrative is not entirely accurate: hedge funds like Senvest Management LLC have also benefited from the latest mania, profiting nearly $700 million according to The Wall Street Journal.
The biggest lesson of this episode is not just that retail investors are able to pool their knowledge and resources to fight against the big sharks of the financial markets, but that the rules of the financial markets and even newer players like Robinhood don't have their interests in mind. With popularization of cryptocurrency and increasing access to financial education, we may be on the cusp of evening out the playing field, regardless of whether regulatory scrutiny or hearings will translate into meaningful changes. Several prominent investors, social media platform CEOs, and investor education advocates appear to agree on this: the GameStop episode is a symptom of greater systemic inequities.
Just ask the CEO of Reddit, where the GameStop drama gathered its momentum. "The big change I see coming is the fulfillment of the promise of the internet. What we're going to see over the next 20 years is the democratization of economics, not just what we're seeing on [Reddit group] Wall Street Bets," said Reddit CEO Steve Huffman in an interview with Kara Swisher. "We're probably going to see the democratization of the banking system through crypto. And it's going to take some time to get there, but I think that sort of accessibility is what the internet creates and I think it's inevitable."
Huffman is not alone. Ray Dalio, the hedge fund billionaire and founder of Bridgewater Associates, also believes that the GameStop frenzy that has captivated national attention of investors and non-investors alike is a symptom of a bigger problem. "Is this a big thing? It doesn't come close to these other big things," Dalio said in an interview with Axios of what we've seen play out in the market. "How should wealth be distributed? Why doesn't capitalism achieve the goal of being good for most people and how do you engineer it that way, while increasing productivity and its efficiency? That kind of engineering is the big thing and I don't think they're paying enough attention to that."
Back in 2019, Dalio wrote about "Why and How Capitalism Needs to be Reformed," arguing that an economic system does not serve the interests of most Americans. He also said he believes in more protections for individual investors.
The U.S. Securities and Exchange Commission (SEC) is now looking at "every aspect of and parties involved" in the rally of GameStop and other companies' shares, according to a report from Reuters.
Newly appointed Secretary of the Treasury Janet Yellen held a meeting with regulators from SEC, Commodity Futures Trading Commission, and the Federal Reserve on Thursday. "We really need to make sure that our financial markets are functioning properly, efficiently, and that investors are protected," Yellen said in an interview with Good Morning America on Thursday. "We're going to discuss whether recent events warrant further action."
The House Financial Services Committee is scheduled to hold a hearing on the "recent market volatility" involving GameStop and other companies on Feb. 18, with Robihood Co-CEO Vladimir Tenev and GameStop enthusiast and Reddit trader Keith Gill expected to testify, according to CheddarTV's interview with Maxine Waters.
Many investors are not hopeful that the SEC or other government agencies can usher quick changes. And the malfunction of the financial system is fueling the surge of interest in cryptocurrencies, with the overall cryptocurrency market reaching $1 trillion in January. On Google Trends, the number of searches for "buy crypto" is surging and reaching new peaks.
Specifically, after witnessing Robinhood's reaction, there is growing interest in decentralized platforms. Rachel Cook, CEO and founder of SEEDS, a social impact crypto startup that gives "seeds" in exchange for donations to those in need, is educating her followers about alternatives to Bitcoin (BTCUSD). "Robinhood is a centralized exchange," Cook says in one video on her TikTok account @TranscendCapitalism. "This is where cryptocurrency comes in. If you go with Ether (ETHUSD) instead [of Bitcoin], you can engage in something called DeFi. When you put your money into DeFi, there is no centralized entity controlling it. You have control over your money at all times."
While the lawmakers try to keep up and understand one company and one case study at a time, the new generation of investors hungry for financial information and new, more equal opportunities to invest is not waiting around. They're too busy taking notes on Reddit, TikTok, or other online communities and planning their next trades.
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