It’s been nearly eight months since the short GameStop squeeze of January 2021, and the effects of the event linger.
Robinhood, which halted trading in GameStop shares (which trade under the symbol GME) on January 28, has faced fines and backlash for its outages and trading stops on meme stocks and crypto -currencies like Dogecoin— though its crypto business continues to thrive. WallStreetBets, the Reddit forum where young “YOLO” traders pooled their energy to buy nostalgic ’90s names like GameStop and AMC and send them to the moon, is no longer a closely guarded secret.
Ben Mezrich has made a living chronicling the kind of traders and technicians who take big swings and end up with boatloads of cash. His book “Accidental Billionaires” became the movie “The Social Network,” and he later featured the Winklevoss brothers in “Bitcoin Billionaires.” His new book, “The Antisocial Network,” is about the GameStop squeeze and, as the book’s subtitle states, the “Ragtag Group of amateur traders who brought Wall Street to its knees.”
In an interview this week on the Decrypt Daily podcast, Mezrich described Robinhood as a double-edged sword for young investors.
“Robinhood made this app which is great fun. It certainly gamifies Wall Street to such an extent that it makes it as easy as a video game, there’s no cost, and with very little education, you can go on and buy and sell stocks.” said Mezrich. “The double-edged sword of this sword…is that ordinary people can also lose a lot of money if they don’t have their eyes open and see what can happen.”
Mezrich sees Robinhood as a great equalizer, bringing the tools of Wall Street to Main Street. But that doesn’t mean next-door neighbors have the same protections as tower traders. Wall Street investors work with large sums of other people’s money and have hedges in place to minimize their downside; they can afford to take risks. But unlike already wealthy traders, he said: “A regular person who puts $1,000 into a stock to see it go down doesn’t get that money back and doesn’t go home to his mansion, he just lost the money he had. ‘she was going to use for their rent.’
Robinhood has taken heat to target younger traders who may lack the experience to understand the risks. (Ironically, the 2008 financial crisis stemmed from experimented people who do not understand the risks or are unaware of them.)
Earlier this year, the company paid a $70 million fine to the Financial Industry Regulatory Authority, which found, among other violations, that Robinhood had consistently “communicated false and misleading information” to consumers, including downplaying risks of transactions and sometimes providing incorrect data. . FINRA specifically called him out on the death of Alex Kearns, a 20-year-old college student who killed himself in 2020 after believing he had lost more than $700,000 on the platform via options trading.
When Robinhood decided to temporarily halt buying on some stocks, citing cash flow problems, anger boiled over to DC, where politicians on both sides of the aisle called on the company to pick winners and losers.
“When Robinhood ‘needs to stop’ trading on this stock, it wasn’t clear to anyone using Robinhood that that could even happen, that all of a sudden they might say you can’t buy anymore,” Mezrich said. “All of this needs to be made clear from the outset.”
That’s enough for Mezrich – a self-proclaimed libertarian – to advise some form of surveillance or protection: “The problem is that without any level of regulation, with this just the Wild West, you’re going to see ordinary people getting hurt a lot more than you see hedge funds suffer.”
That doesn’t mean he thinks the concept is fatally flawed. “The positive side is that everyone should be part of the economy. The more people on Main Street who participate on Wall Street, I think the better it is for everyone.”
Don’t think you’re going to beat Wall Street. Mezrich, who has covered upstarts in everything from casinos to online poker rooms, knows that the house almost always wins.
Want to be a crypto expert? Get the best of Decrypt straight to your inbox.