The meme stock saga has provided the internet with endless drama over the past few days. Who can’t get behind a group of regular investors banding together to screw over hedge funds that gut companies and manipulate markets for gross profits? At once, meme stock owners—spurred by the subreddit r/WallStreetBets—were sticking it to vulture capitalists and making massive profits at the same time as GameStop’s stock price soared.
Still, if you’re sticking it to Wall Street, it’s only a matter of time before Wall Street strikes back. By Tuesday night, hedge fund owners were complaining that they might need to be bailed out if meme stock plays were allowed to continue. Financial pundits whinged about unfair market manipulation, and by Wednesday night, WallStreet Bets had been shut down on Reddit and Discord. On Thursday morning, the other other shoe finally dropped—Robinhood, one of the most popular trading apps, was no longer accepting buy orders on GameStop, AMC, or any other popular meme stocks. Its users could only sell.
Robinhood is no longer allowing users to do anything but close out their #GME or #AMC positions. Hard to put into words how outrageous that is. This is, much more acutely, the definition of manipulating the market.
— Isaac Saul (@Ike_Saul) January 28, 2021
What a joke.
— Joe Pompliano (@JoePompliano) January 28, 2021
Meme stock owners were outraged. Without the capacity to buy more shares, regular traders can’t continue to drive the price up without taking their business elsewhere (and likely paying a commission). In one fell swoop, Robinhood, the investment app that sold itself on democratizing stock trading and investing for everyday people, ended the play and flipped the game in the other direction.
robinhood decided this morning to suspend buying of AMC and GME stock because regular people were making too much money, proving once again that any time the poors find a way to get any sort of financial foothold in this world the billionaire class will move swiftly to crush them
— WSB Chairman (@arshbajwaa) January 28, 2021
Robinhood delisting GameStop et. al. exposed the stock market’s base hypocrisy—billionaires are allowed to manipulate the market any way they like, destroying companies, devaluing currency, even tanking whole governments for profit. But the moment regular people band together to manipulate the market and create some sort of financial foothold, it’s bad. Only the super rich are allowed to do that. It’s the contradiction at the center of Wall Street that everyone tacitly understands—the rich can’t lose. It’s why banks get bailed out by taxpayers holding their hands out for $600 stimulus checks.
This may be controversial but I’m starting to think there’s one set of rules for rich people and another for everyone else
— Better things are possible (@InternetHippo) January 28, 2021
remember, a hedge fund can drive a stock price of an already suffering business directly into the ground by aggressively shorting it, but if you decide to push and drive that stock price back up collectively (and raid a hedge fund) then you are engaging in something that’s bad.
— hasanabi (@hasanthehun) January 27, 2021
There are a few different reasons why Robinhood might’ve stopped users from buying meme stocks. The GameStop bubble grew larger than anyone could have possibly imagined, and by yesterday afternoon it was clear this was no longer a Wall Street vs. Main Street issue—big money was clearly swooping in to capitalize on the chaos. There’s also a chance Robinhood was preemptively protecting itself from future regulation, the kind that will inevitably be passed to prevent a meme stock bubble from ever happening again.
But another overlooked detail emerged last night: Citadel, a hedge fund whose subsidiary handles most of Robinhood’s trades, injected more than $2 billion into Melvin Capital on Tuesday. By suspending meme stock trading and halting the price drive, Robinhood isn’t just protecting itself—it’s almost certainly making money on both sides of the coin. If it looks like a duck and quacks like a duck, it’s probably a duck.
As of this writing, GameStop’s stock is down on the day. Other meme stocks have sunk too, with traders searching for solutions while being pressured into selling. It’s not hard to make a losing play when the game is rigged.