GameStop saga reveals legacy finance is rigged, and DeFi is the answer

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Earlier this week, Elon Musk made historical past when he placed his full support behind Bitcoin (BTC) throughout a Clubhouse stream. When discussing Bitcoin and the GameStop debacle with Robinhood CEO Vlad Tenev, Musk stated: “I’m late to the celebration, however I’m a supporter of Bitcoin.” This got here just a few days after Musk modified his Twitter profile, adding “Bitcoin” to his bio.

Apparently sufficient, Musk’s public endorsement of Bitcoin comes at a time when legacy monetary markets have been brazenly caught defrauding their very own clients, and the Robinhood app is on the middle of this fraud. Certainly, the richest man alive instructed the world that he believes Bitcoin is on the verge of mass adoption amid a backdrop of prison inventory market conduct.

The GameStop saga

For these unfamiliar with these occasions, the GameStop saga is a “David and Goliath” story that started off with a group of on-line merchants on the subreddit r/Wallstreetbets bringing down hedge funds — clawing away at billions of {dollars} in institutional brief orders. A brief order is a kind of order that enables traders to revenue from the demise of an organization.

After retail traders realized that hedge funds shorted GameStop for 150% of its whole public inventory — i.e., extra shares than existed — a gaggle of two million (now 8 million) Redditors discovered that by shopping for the inventory and never promoting, hedge funds that shorted GameStop would lose billions. And thus it was. By Jan 29, the loss tallied $19.75 billion as phrase unfold via the ability of the web.

Nevertheless, as quickly as retail traders started successful, the long-reaching tentacles of centralized firms had been capable of cease the sport solely, freezing buying and selling on key exchanges and buying and selling infrastructure in order that hedge funds might reposition with out shedding every thing.

Decentralization and the “American dream”

Certainly, one of many largest fictions of our time is the story of free markets. This idea embodies the “American dream,” whereby anybody who chooses to comply with their desires can accomplish that (at appreciable private threat). This consists of the power to be rewarded (or punished) for having a stake within the monetary sport, which ought to function underneath strict guidelines.

Whether or not it is high-frequency buying and selling, artificial derivatives, infinite money-printing or some mixture of all three, the inventory market rewards a handful of insiders who sport the system and play by a special algorithm than everybody else.

It is essential to appreciate that the difficulty is just not the sport itself — free markets are essentially the most environment friendly means of correct worth switch, if finished appropriately. The difficulty is that guidelines solely apply if institutional gamers win, in any other case they are often damaged, suspended and revised with minimal penalties for these with buddies in excessive locations.

This drove many Redditors to the purpose the place, understanding that the market is rigged, they didn’t care about shedding cash, supplied hedge funds lose billions. It began out as retribution in opposition to these accountable for the 2008 monetary disaster and the distress that many needed to endure due to it.

This Reddit submit paints image of the motivations that impressed thousands and thousands of individuals to band collectively in opposition to crooked monetary conglomerates. After all, different motivations — reminiscent of revenue motives — had been undoubtedly at play because the market fed by itself self-reinforcing mechanisms. Regardless, the system’s true colours at the moment are on the market for all to see.

And whereas legacy monetary media has tried to steer the narrative in a sure course, the reality of the matter is that this story is apolitical and exposes the truth that atypical on a regular basis persons are not allowed to win. No matter intentions, the inventory market is proven to be a way to entrench and exacerbate poverty in a rigged sport that solely advantages those that are already rich.

The beginning of a journey

Nevertheless, the journey would not finish right here — for there’s a parallel system that’s not managed by Wall Avenue or central bankers, and it is rising as we converse. With a market capitalization of over $1 trillion, cryptocurrencies are quick turning into the brand new frontier for monetary markets that don’t have any allegiances.

On high of being a brand new expertise that democratizes markets, there’s now a crystal-clear purpose for traders to choose out of the previous system and enter the brand new one.

Bitcoin began this revolution 11 years in the past, and it doesn’t cease there. A completely new monetary ecosystem is being constructed on Ethereum from the bottom up, which has sprung a wealth of decentralized finance merchandise with numerous trade-offs and use instances.

This time final 12 months, capital in DeFi merchandise reached the $1 billion landmark. Right this moment, that determine is approaching $30 billion, in line with DeFi Pulse.

With this backdrop, the way forward for monetary markets appears nearer than ever earlier than.

This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer includes threat, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed here are the creator’s alone and don’t essentially mirror or characterize the views and opinions of Cointelegraph.

Christopher Attard is a journalist turned cryptocurrency author and analyst. Having labored in each the blockchain occasions sector and conventional finance through the years, he now covers Bitcoin extensively in a semiweekly e-newsletter. Christopher additionally works with numerous small and medium-sized enterprises within the house as a author and content material technique guide.