29. November 2023

Does decentralised investment power have a future?

Wallstreetbets: Does decentralised investment power have a future?

The Reddit group Wallstreetbets has passed its zenith, at least for the time being. The prices of Gamestop, Blackberry and Co. are on the way to normalisation, ergo strongly south. What decentralised investment power can do and why serious consequences for the crypto economy are to be expected.

The decentralised power of the market has been unleashed with the help of the Reddit group Wallstreetbets. Small investors have gained the upper hand, at least briefly, over supposedly overpowering institutional investors. The self-image of the Wall Street elite has been weakened by social media dynamics. Hedge funds such as Melvin Capital have been brought to their knees.

The real power behind the Wallstreetbets movement is revealed in the fact that the Bitcoin Future price explosion of the underlying assets defies any fundamental valuation principle. It is a demonstration of power by the collective, which in case of doubt can also hype junk into gold.

This can be seen par excellence in the rather meaningless cryptocurrency Dogecoin. It was not the coin of a promising smart contract protocol that became the target of Reddit investors, but the cryptocurrency that sees itself as a satire of Bitcoin and the entire crypto-economy. A perspective-less coin – whose only value proposition is buried in its own irony – has become the darling of the masses. Even Elon Musk has expressed his solidarity with it, and with him the masses of the internet community.

Narrative Economics – It’s the story that counts

It is a storybook narrative of the people rising up against the ruling class – class warfare. It is a narrative that connects the aspirations of a group of mostly young people bored with lockdown with each other around the world. Robinhood and Traderepublik are dedicated to the inclusion – at least predetermined measures – of the securities sector: Gambling for the masses.

This supposed democratisation of our financial system corresponds with the crypto narrative of re-decentralisation. It is therefore more than fitting that, alongside Reddit forums, many Telegram groups have formed, which now move from share to share or cryptocurrency to cryptocurrency with a strengthened group spirit. The phenomenon behind this is anything but new. Pump and dump schemes are as old as the hustle and bustle of the stock markets themselves.

Robinhood plays into DeFi’s hands

On the other hand, Robinhood and Co. show that they do not live up to the claim of a decentralised financial economy. In contrast to the decentralised financial sector (DeFi), they are gambling away the trust of their customers by stopping the trading of stocks like Gamestop, Blackberry or AMC in the interest of hedge funds. Pulling the plug“ should be one more argument in favour of decentralised exchanges and digital assets whose trading is possible 24/7 and cannot be easily stopped by a single player.

Nevertheless, one has to be honest enough to admit that cryptocurrency trading, at least as it currently predominantly takes place, can be „turned on and off“ in practically equal measure. The decisive factor is not the asset, but the question of who is the custodian and who provides the trading infrastructure. A crypto exchange or crypto broker could stop trading from one second to the next just like Robinhood. The fact that these are cryptocurrencies instead of shares is irrelevant in this context. Only the fallback options through decentralised alternatives are different.