And if you can make a few million while you’re at it …
It didn’t help that the short sellers were massively overfunded and increased their impact on the market disproportionately.
On the positive side of this, the next time someone wants to stack in a short position this way, maybe they will think twice about it. Reddit may have effectively stopped using the big short by these funds as we know them.
I think this was easier than voting for Elizabeth Warren and waiting for legislation – but my goodness guys, we could have had both!
Is Shorts Derailment Bad? I don’t think it’s good or bad – it’s just a factor that everyone needs to consider.
The bigger problem
If a few little people want to use technology to coordinate and compete against some big hedge funds, even for kicks – hey, you have it.
The problem is, you don’t really know if they’re actually a bunch of little people. What if one of the “little guys” is actually Steve Cohen and his hedge fund, using an anonymous Reddit account and long in stock? What if someone bought one of the little guys and offered him a million dollars and a few perks to stuff a certain stock?
Then there is a problem.
As we saw in the 2016 elections, an American patriot who cares about freedom might turn out to be a bot farm with Russian support trying to destabilize things on this side of the world.
This is how people get hurt – when they don’t really know who they are following or what their motivation is. The dark side of democratization is the lack of traditional forms of authority and quality measurement. We could reinvent these – and we should – but until we do, it’s hard to know who to trust.
On the other hand, what happens when Elon Musk tells his 43 million Twitter followers every day which stocks he has just bought. Even if they know he will throw it away, knowing that other people will try to get in while the good is getting good is enough to get the stock up.
He could do this literally every day. It is not bound by any fiduciary duty, nor would it violate a Twitter policy.
There are simply no rules for doing this that apply to Elon Roulette and Army of Robinhood accounts.
Hold one eye
What is very clear is that Robinhood, Reddit and Twitter didn’t plan this – and it really was just a matter of time. They are not even able to track the manipulation of the stock markets on their websites, whether they want to do something about it or not.
Quote Geri Kirilova from Laconia Capital“You mean ‘this is going to be a big problem’ is not enough of a strategy?”
I mean, if anything, the entire Robinhood public ethos – including the On the nose Name – it was about giving the “little guy” the power of the big guys. Because of this, it was absolutely amazing that the company blocked the purchase of Gamestop and AMC.
Users used the platform as intended. They didn’t hack or do anything illegal. Now they have a class action lawsuit and they lost a lot of consumer credit.
Name one worse move by a company that is so close to the height of its popularity.
Is New Coke even getting close?
The damage to your brand can be irreparable. Now they are being dragged before a subcommittee of Congress and it will be 100% revealed that they have been overly influenced by the people who pay the bills – the institutions who pay to run the business at the top.
You can bet on it without being on Reddit.
I also realize that for sites like Twitter, Reddit, etc., this is a version of the problem they had during the elections. By providing a platform on which people’s language can be freely magnified, they become a target for community-based manipulation. One day there will be about 100,000 voices in a swing state.
Another day is about a thinly traded Australian swimwear brand.
It’s the same problem.
Choosing not to know what is being said on your platform, who is saying it, and how those voices are magnified has huge second-order implications. These issues require careful policy and compliance work as platforms grow to the size they are today.
Is it too much to ask the people who are being promoted whether or not they have a position in a stock? I mean, we ask Instagram influencers to say whether they are paid by clothing companies or not.
This seems far more dangerous.
What is very clear is that new “retail investor protection” rules will sound a bit hollow if retail investors couldn’t trade today and large hedge funds were free to do what they wanted.