Whether one owns any crypto currencies or not is not as important as having an idea as to how these crypto currencies’ valuations get set. It is important because, the assets which we hold could be purchased by the spawning new billionaires at the cost that we demand. Funnily, the payments that they would be making for those assets would not be out of their blood and sweat, nor out of liquidating some other assets of some value.
These crypto cowboys had entered the market very low and purchased their cryptos. For example, the Dodge coin millionaire’s average cost of his four million dogecoin is 4. odd cents per coin, and the present cost is round about 30 cents, which means he is already sitting on a pile of appreciation of 700%. The Dogecoin millionaire has diversified into YouTube spots and has become a celebrity and icon for the millennials who have collectively invested small amounts on doge, thereby he has ensured an internet following with financial accruals which would not visible to others. Good for him, but that’s the icon he has to exalt, come what may! He has claimed that his personal target would be ten million dollars before he would think of selling. He recommends HOLD HOLD HOLD! There is no intrinsic value to doge except for the fact that there is a huge crowd following him like the Pied Piper and it is that following which by holding on to doge stabilises the price of the coin.
Hope is purveyed on a perennial basis! And nobody wants to be left out in this Second Coming of the crypto, everyone is waiting for the Rapture!
That on the one side, there are sharks which operate on the processes and make it confusing even for Congressional committees to arrive at ‘facts’ integral to ascertaining the TRUTH!
The example of the ROBINHOOD, headed by Vlad Tenev in the context of GameStop would be apt on this count. Please read the screen shots of the article which appeared in Medium:
The context of the above screenshots is that GameStop was the scrip and the brokerage firm was Robinhood. The players were the millennials of Reddit on the one hand and the Hedge fund guys on the other side.
So this is the game of sentiments and the collective might of the fries on the one side, and the knowledgeable hedge fund bosses with financial might on the other side!
GameStop, pumped up on the sentiments of the millennials starts rising and the Hedge fund managers see the non-sustainability of the price of GameStop and go short on the same scrip!
The game continues and at one point the millennials keep buying the scrip even though the prices kept going up, whereas the Hedge fund guys are required to buy up the shares and provide delivery to the buyers (millennials). Now the scrips for delivery have to be bought from the very millennials who are in a bought position, which they would not be willing to sell and thereby constrict the Hedge fund guys. The process escalates and the hedge-fund guys had to offer more and more to buy and deliver.
At this juncture an event is supposed to have happened: The clearing house demands a 100% on any further purchases by Robinhood on behalf of its clients. The amount demanded was reportedly $ 3.7 billion in cash. Robinhood was NOT ABLE TO ARRANGE THAT COLLATERAL AND IT APPREHENDED THAT THE FIRM WOULD SINK – hence they shut shop without notice to the clients! This brought down the momentum and the Hedge fund guys were the ‘UNINTENDED’ beneficiaries!
What i am unable to believe is that, as already mused in the article screenshotted above, who impelled the Clearing house to put up a demand of 100% collateral at that juncture?
Anyone would know that a brokerage firm may neither hold that much in cash nor be able to arrange for it at such short notice.
Did the Congressional inquiry team get behind such a demand – if so whether it was sanctioned by Law that the clearing house could make such a condition midstream?
What baffles me is that Vlad Tenev, who had been the beneficiary of the millennial crowd instead of bringing that fact to the knowledge of its millennial customers and requesting them to put in 100% margin, silently closed the operations, which “unintended ly” and “unintentionally“ helped the Hedge fund guys who had gone short beyond their means with no sellers of GameStop in sight.
The article by James Surowiecki is too kind on Vlad. Further, he gives another example of another brokerage firm which went through the same stuff on the same scrip at the same time and did the same thing, and goes on to add that Vlad was faced with an uncanny situation and that he could have explained it post facto like that other guy! What a fallacy!
When the millennials were baying for the blood of the Hedgefund guys and the momentum was in favour of the millennials, instead of relying on those very millennials on whose money Vlad was riding the wave, chose NOT to take the Reddit millennials into confidence and inform them of the demand of the clearing house, instead went sneakily supporting the cause of the Hedge fund guys!
Because the crowd would dissipate in time, but the Hedge fund abides for ever! That was MUTUAL FUNDING‼️