[FEBRUARY] Revenge of the Nerds: Squeeze Street

This is a letter about cryptocurrency and blockchain industry that our chief editor publishes once a month.

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When a ragtag band of online misfits decided last month to run up the price of stocks that were long ago left for dead by the world at large, it seemingly had all the hallmarks of a satisfying revenge movie. Our protagonists were plucky plebeians who pooled their modest resources and made off with small fortunes at the exact same time that they wrecked the hedge funds of ivory tower elites that bet against those same stocks. The world was as blown away by the audacity of the plan as it was the mechanics of the event.

Of course, real life is never a movie. We haven’t reached the end of this story yet, but it’s already clear that the resolution won’t be neat and tidy. While some retail investors certainly sailed off into the sunset, mai tais in hand, many others who mistimed their jumps are now in crater-width ruts. Barring another stratospheric run by GME to US$500, these latecomers are now stranded without a chair to sit on. Make no mistake, some of the “small guys” are absolutely going to lose here.

There are other logistical and ethical considerations, including the decision by several brokerages to limit or temporarily halt buys at the height of the spike. As wild as the stock pump was, the price easily could have reached wilder heights if not for such actions. These brokerages would later explain that the halt was necessary to meet dramatically increased deposit requirements by skittish clearinghouses. If true, one can’t help but wonder how differently the scenario might have played out if market orders could be verified instantly (or, at least within minutes) via cryptocurrency, rather than the multi-day wait endemic to fiat transactions settled by clearinghouses.

The novelty of this event has everyone screaming with questions. Is it still market manipulation when there is not one actor moving, but a thousand? Have we entered a new era of pump-and-dump? Will hedge funds specializing in aggressive shorting now hedge the type of work that they do? Some hedge firms have already hinted that the GME short squeeze will permanently alter the way short selling is performed.

As institutional and retail investors around the world speculate which stock or asset will be selected for the next orchestrated boost, crypto exchanges are positioning themselves to join the action. F** was one exchange that early on set up tokenized spot and futures trading specifically for GME. As of this writing, silver is experiencing an abrupt and unnatural surge in prices, though definitive evidence of a coordinated push has not revealed itself yet. Whatever happens next will be happening in a brave new world, where the rules will be remade and rewritten as we go along.

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