Crypto’s Last Week
This edition of “Crypto’s Last Week” accounts for the most notable, and crypto-related — institutional, investment, or regulatory — news published between Saturday, January 23, 2021, and Friday, January 29, 2021.
Last week a tidal wave of news regarding the massive retail investor dive into a heavily shorted (140%) GameStop stock (GME). This surprising run on Wall Street originated from a subreddit thread r/wallstreetbets with the intention to create a “short squeeze” and gain substantial profits while inflicting serious damage on hedge funds leading the huge short strategy of this stock.
The week ended with a self-preservation move by the commission-free stock trading app Robinhood restricting transactions on a number of stocks, including GameStock, that would have loaded the platform with high-risk assets in a very volatile market, setting them up for a potential liquidity bomb, ticking in their hands. As expected, users were nothing but furious and have taken every action between class-action lawsuits to one-star ratings on the Google and Apple App Stores.
This has inevitably brought attention from large crypto personalities and even outsiders to the crypto industry, more specifically, to the Decentralized Finance (DeFi) sector of the industry. Based on the premise that liquidity shouldn’t be an issue and that there shouldn’t be a scenario where there could be a preference for regulators to defend multi-million dollar asset management firms against retail investors.
Liquidity shouldn’t be an issue as long as the market provides buyers and sellers, hence, the value that DeFi brings by the way of Decentralized Exchanges (DEX) where P2P transactions are the norm and through consenting parties, any deal supported on the platform can be done without oversight from a third party. This would solve the alleged motivation for Robinhood’s app risk management to block the trading of certain assets such as the GME stock.
Moreover, the narrative of alleged market manipulation from Wall Street hedge funds against retail investors from the previously mentioned Reddit forum, and vice versa, creates an overall debilitating environment towards the whole equity market which is rooted in trust, by retail investors on regulators and hedge funds, under the assumption that there should be a generalized interest to protect the “little guy” and not take advantage of large swaths of information that could easily be acquired via large sums of money before it reaches these retail investors.
DeFi brings an end to any potential misconception of market manipulation under the veil of liquidity and risk issues or information shared in special circles to maintain the status quo of large financial institutions.
Editor’s Note: James Wo is an active investor and the Founder of Digital Finance Group (DFG), a firm that manages investments in excess of $550M. He oversees a digital asset fund that is largely outperforming the market and a VC portfolio that includes Polkadot and its ecosystem projects such as Bifrost, Tidal, Crust, Acala, and more. He’s also managed investments in Brave, LedgerX, Bloq, and Circle. Additionally, James is the Founder and Chairman of Ethereum Classic Labs, the leading supporter of Ethereum Classic (ETC), a public blockchain with a market cap of $1.5B. He is Chairman of Matrix Exchange Ltd., a licensed virtual asset trading platform and custodian regulated by the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market in UAE.
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