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Wall Street bets


This week in fintech

February 1 · Issue #45 · View online

A weekly summary of the latest news in our world of finance, design, and technology.

Also: 📈 A once-in-a-lifetime trade 🏹 Robinhood “against the people”? 💨 Fast checkout ⛓ Mastercard betting on blockchain ♻️ Gjensidige recycling 🧑‍💻 State of design in 2021

👔 Wall Street bets
I can’t speak of last week without mentioning the Reddit channel r/Wallstreetbets and the Gamestop stocks. Here is a short story of what has happened if you haven’t heard the story: Gamestop sells games in stores. Do you see the problem? Who buys games at stores anymore? Who even goes to malls at the moment? Naturally, some hedge-funds shorted this stock, hoping to profit. Here is a simple explanation of shorting from BUST Magazine:
Let’s say you bought a dress at Target for $30. I tell you, hey, can I borrow that dress for a few weeks? I’ll give you $5, and I’ll also give you the dress back.
You say yes, so I go straight to Target and return the dress. I get $30. I wait a few weeks when the dress goes on clearance for $15. I buy it and give it to you. I’ve just made $10 ($15 - $5 I gave you)
But let’s say someone wears the dress to like, the Academy Awards. It quickly sells out at Target, and the only way to get it is for $120 on eBay.
I have to buy it for $120 because I promised I’d give it back to you, and I’ve just lost a ton of money. This is what just happened to hedge fund people.
In this case, Redditors saw the short-position that Melvin Capital Management, a multi-billion dollar hedge fund, had acquired in Gamestop and started to buy the stock. This created a short-squeeze where the “borrowed shares” were due, but Redditors refused to sell, demanding higher and higher prices. Even Elon Musk was blowing up the stock. The result? Melvin Capital had to be “saved” by Citadel and Point72 infusing close to $3 billion into the company to get out of their position. As usual, Matt Levine has the best, nuanced explanations for what happened.
📈 A once-in-a-lifetime trade
There is a lot of stories to come from this epic battle between Wall Street and Redditors. One of them is of Ryan Cohen, who has nothing to do with this price-pushing, but saw an opportunity to save Gamestop in August. He started to buy the stock until he became the third-largest shareholder (12,9%) for about $75.9 million. He took an activist approach and sent a letter to the board urging them to turn around faster and get into selling games online. Suddenly he finds himself on the board of Gamestop, and Redditors are pushing the stock to new heights. Now he sits with Stocks worth over $1 billion, more than he could ever hope for in this case, and cannot sell them because of legal complications and because the stock then might collapse. As Matt Levine puts it: «He’s made a once-in-a-lifetime trade and can’t cash in.»
🏹 Robinhood "against the people"?
On top of all this, Robinhood had to raise $1 billion extra from its existing investors and restrict buying new Gamestop stocks due to restrictions from their clearing firm. Suddenly Robinhood is looking more like the Sheriff of Nottingham, and users are abandoning the ship of the popular stock trading app.
I don’t know what’s next for this, or other r/wallstreetbets-stocks, but maybe we’ll soon see a r/wallstreetbets-ETF taking advantage of situations like this? As a nice closing on this topic, Morgan Housel has written a nice take on the case explaining how feedback-loops leads to crazier outcomes than you expect.
💨 Fast checkout
Last week we wrote about Vipps taking on Klarna, as well as Stripe. This week we learned that Stripe leads a $102 million funding round for the online checkout start-up Fast. Their product? Fast authentication and eventually Buy Now/Pay Later solution. Sounds familiar?
⛓ Mastercard betting on blockchain
The rise of cryptocurrencies presents an existential threat to Mastercard and Visa’s business model as a middle man for payment processing. Last week we got a glimpse into how Mastercard is trying to forge a new path in a world where payment processing is no longer needed. This time by building a system for managing digital media rights on the blockchain:
With this filing, Mastercard wants to build a blockchain that will allow for users to own digital media rights that are agnostic to video platforms. [..] More interestingly, we could begin to see a lot of innovation in how money flows between studios and consumers. For instance, users could end up paying to watch content on a per-minute basis. The more interesting the piece of content, the more of a user’s subscription gets allocated to that specific movie studio.
You can read more about the filing on Patent Drop
Speaking of Blockchain: Coinbase last week made it official that they are soon going public. Investors say it could hit a $100 billion valuation when it goes public.
♻️ Gjensidige recycling
What do insurance companies do when they have taken over assets after claim settlements? Gjensidige last week launched that they are the first from the financial industry repairing and selling items from claims settlement on Tise. An excellent initiative for giving objects a longer life and taking care of the environment!
🧑‍💻 State of design in 2021
Design today is no longer just about the output — the artifact, the cool thing. Design must deliver on business outcomes. Abstract - the design collaboration SaaS for Sketch - has surveyed over 1 000 designers on how they work, what they value, and what kinds of challenges they’re facing and made a nice report-page. Head over to their one-pager to read their main findings.
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Marius Hauken, partner Stacc X
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