Rethinking the Meme Trade

Throughout 2021, there's probably only one story that's gotten more attention than Bitcoin: meme stocks and the revolution that seemed to be under way earlier this year when GameStop and others stocks soared with little rationale.

The dominant storyline was that retail traders had found their voice through a popular Reddit forum called WallStreetBets. By working together, the traders had taken on Wall Street and hedge funds, finding ways to move markets and crush short sellers. 

Some nine months later, the story is proving more complicated. Today, the Securities and Exchange Commission released a much-awaited report on the subject. The bottom line? There were just a lot of passionate retail traders trying to buy shares like GameStop all at once. 

The Reddit versus hedge fund trade may not have been all it was cracked up to be, according to the SEC. Here's more from Avi Salzman, who happened to see two of his primary beats -- Bitcoin and meme stocks -- blow up on the same day: 

One line deep within the report indirectly disputes the contention that retail traders made money off the pain of hedge funds who had gone short GameStop.

“Staff believes that hedge funds broadly were not significantly affected by investments in GME and other meme stocks,” it said.

The SEC's report offered clues of potential changes, but no specific recommendations, Avi notes. 

The SEC’s conclusions include recommendations that the agency examine how behavioral prompts from online brokers may encourage trading and how payment for order flow — payments from market-makers to brokers to execute their trades — may impact retail investors. The agency is already looking into those issues. The report also says that speeding up settlement times would help, echoing recommendations that market players including Robinhood have made. In addition, the report says that regulators would benefit if there was more info out there on short selling.

You can read the rest of Avi's story here.