GameStop stock frenzy re-ignites call for the democratization of finance
How “Reddit Investors” put the spotlight on capital market access
By Vanessa Malone
For the last month, in true Main Street versus Wall Street fashion, the world witnessed Reddit community wallstreetbets take a stand against Wall Street by pumping the stock prices of GameStop (GME) and various others to counter Wall Street hedge funds that were “shorting” the stocks.
GME went from $17 in early January to $325 by late January. As of February 4, 2021 the stock hovers around $67. Despite the drop, this coordinated move cost traditional Wall Street hedge funds billions of dollars.
One of the reasons the GameStop frenzy is making headlines is because it’s being driven by retail investors, aka everyday individuals. With the events surrounding the GME stock, the importance of democratizing finance has been brought back to the forefront.
Let’s dive a bit deeper.
Historically, access to capital markets has been determined by wealth. The rise of the internet, fintech, and regulatory changes over the last few years have begun to shift this balance of power from institutions to the individual.
While still in the early days, equity crowdfunding really capitalized on the power of the internet to increase access to funding and increase investors’ access to early-stage, private investment opportunities that were predominantly restricted to high-net worth individuals.
More recently, individual investors have been entering the public capital markets in droves through retail trading apps like Robinhood, E*TRADE, Acorns, etc. These apps offer windows into the stock market through userfriendly interfaces. While sometimes criticized for “gamifying” the stock market, these modern interfaces are important stepping stones that work to increase access to capital markets and level the playing field for the everyday investor.
It’s a powerful mission fueled by the power of fintech and information sharing. It is why there was so much outrage when Robinhood, whose name signifies taking from the rich and giving to the poor, limited trading for GME and other volatile stocks. It begged the question as to why access to capital markets was only modified when a band of average joes came together to play the same game financial institutions have been playing for decades and begin to win.
The very nature of information sharing on the internet shows how powerful the masses can be. Instead of financial institutions being able to hide behind insider knowledge, their dirty laundry is immediately aired out for the world to see. This makes it really difficult to, for example, restrict trading for the retail trader community while hedge funds were able to freely buy and sell the same stock at will.
The backlash from this was swift and continues to ring loudly from all corners of the internet. Lawmakers, investors, influencers and traders voiced their outrage on the matter.
Senator Elizabeth Warren on CNN said, “We need a market that is transparent, level and that is open to individual investors. It is time for the SEC to get off their duffs and do their jobs.”
The commentary surrounding the restrictions will hopefully put pressure on regulators to take action to make capital markets more accessible, but as a FinTech company in the space, we’ve found that technology often moves faster than regulation.
We anticipate traders paying more attention to decentralization, the technology behind cryptocurrencies, and moving towards applications that accurately protect the democratization of finance through design rather than company slogans.
We believe this is why technology innovations that are built to protect against market manipulation and give greater control to the individual will come out on top.
It’s why the Horizon team is so passionate about our upcoming global stock exchange and trading app, Upstream, a joint venture between Horizon and MERJ Exchange expected to launch Q1 of 2021.
Upstream is an investor-driven marketplace with best bids and offers secured using the Ethereum public blockchain. Investors of all levels can buy, sell, and settle securities directly from the userfriendly trading app.
Pricing to buy or sell a stock is determined by the individuals and the free market, not by any market makers. There is no short selling, no naked short selling, and the public orderbook is available for all to see. Whether you have diamond hands or paper hands, you can be assured that the market you’re looking at is honest.
What has happened over the last few weeks has revealed important flaws in the current capital market system, especially as it pertains to the everyday investor. The outrage over market restrictions is re-igniting the importance of democratizing finance and increasing market transparency. As a company, we hope to fuel the next generation of retail trading with our investor-focused applications.
Issuers and investors can click here to join the Upstream waitlist.
About Horizon
Horizon is a fintech company that builds and powers global securities exchanges with an integrated suite of software for compliant issuance, management, and secondary trading of securities. Our in-house solutions combine Wall Street and Silicon Valley to power the next generation of securities offerings and trading in the U.S. and globally. Learn more at https://www.horizonfintex.com/.
