South Korean retail investors pointed to the U.S. GameStop saga to pressure local regulators to extend the country’s ban on short-selling stocks. They succeeded, at least for now.
Then, GameStop happened.
In January, retail investors in the U.S. banded together on Reddit to bet in favor of stocks (like that of American video game store GameStop) that certain Wall Street hedge funds were shorting. GameStop’s share price skyrocketed, forcing Wall Street investors to cover their losses by also buying the stocks, further boosting the price.
U.S. retail traders were soon joined by eager small investors from all over the world. In South Korea, where retail investors dominate stock trading (accounting for 70% of the market), traders drove around in a battle bus, covered in anti-short selling slogans. Around 30,000 Korean traders reportedly came together on an online forum to drive up the prices of stocks like Celltrion that are often targeted by foreign short-sellers. Some local politicians rallied behind retail investors who were calling for an extension of the ban.
On Wednesday, Eun Sung-soo, Chairman of South Korea’s Financial Services Commission held a press conference, announcing that the ban was not only extended, but will only be partially lifted after May 2. The ban will still remain on over 2,000 stocks.
“The partial resumption is intended to minimize the impact on markets, given these stocks have large market caps and liquidity so that the resumption of short-selling would have limited impact on stock prices,” the press statement said.
Although local investors may have welcomed the temporary extension, this view is not shared by institutions around the world. On January 27, the International Monetary Fund (IMF) urged the country to lift the ban, now that the markets had stabilized.
According to local media, on Wednesday, the Financial Times Stock Exchange (FTSE) reportedly sent a letter to regulators in South Korea warning them that it could revoke the nation’s classification as a “developed country” in the FTSE Equity Country Classification index should the ban remain in place. To qualify as a developed country, its equity market should permit short sales.
In 2020, the Korean stock exchange was among the top 20 in the world in terms of market capitalization.
Melvin Capital started 2021 with $12.5 billion in assets before retail investors from Reddit caused the firm to lose billions on its GameStop short positions.
According to a Wall Street Journal report, the hedge fund has a little more than $8 billion in assets at the end of January, which includes a $2.75 billion investment from Citadel and Point72 Asset Management earlier this month. This represents a 53% loss, according to people familiar with the firm.
In the report, a client claims that Melvin has “massively de-risked” its investment portfolio following the controversy involving short selling GameStop stocks. People familiar with the hedge fund said Melvin has restructured its portfolio to improve its ability to exit securities easily. The hedge firm, as well as Citron Capital — another firm involved in the shorts — reportedly closed out their positions with GameStop last week.
Many of the major players involved in the GameStop short squeeze are facing outrage online after Robinhood — a platform with financial ties to Melvin — and other investment tools restricted trading for GameStop stock in the middle of a price surge. Retail investors seemingly being cut off from financial tools afforded to major hedge funds prompted allegations of market manipulation.
The U.S. Securities and Exchange Commission announced on Friday that it would be “closely [reviewing] actions taken by regulated entities,” purportedly in connection to the situation surrounding Citadel, Melvin, Robinhood, and potentially the retail investors from the r/WallStreetBets subreddit. In addition, Robinhood is facing two class-action lawsuits in federal courts in Illinois and New York.
The price of GameStop stock was $325 when markets closed on Friday, having risen 67% in the previous 24 hours.
Bitcoin’s price reversed Wednesday’s losses on Thursday. Traders and analysts, however, have largely kept a short-term bearish view because some are attributing gains in bitcoin and other cryptocurrencies to GameStop’s stock drama.
Bitcoin (BTC) trading around $32,607.78 as of 21:00 UTC (4 p.m. ET). Gaining 3.17% over the previous 24 hours.
BTC above its 10-hour and 50-hour averages on the hourly chart, a bullish signal for market technicians.
GameStop’s stock drama seems to be galvanizing not just stock markets but bitcoin and other cryptocurrencies, many of which reversed their losses of just a day ago, similar to what happened in the U.S. equities market. The most notable winner was dogecoin (DOGE), which hit a new all-time high earlier Thursday.
Few attribute bitcoin’s price gains Thursday to market fundamentals. That’s because the crypto community still looks to be distracted by the GameStop (NYSE: GME) situation. A group of Redditors on a board called WallStreetBets (WSB) sent the video game retailer’s shares skyrocketing in order to squeeze hedge funds that were betting the stock’s price would go down.
Read More:Bitcoin Rebounds From Early Losses, Markets Still Distracted by GameStop
“We are still on a downward chart from the $40,000 highs,” John Willock, chief executive at digital asset exchange Blocktane, told CoinDesk. “So the short-term volatility of up to 10% can be attributed to the market still finding its footing and consolidating to a more firm, sustained price level for the near future.”
On the technical side, bitcoin is near short-term oversold levels, yet momentum is still on the downside, according to Katie Stockton, managing partner at Fairlead Strategies.
“After a period of stabilization, the 50-day moving average (MA) looks in store for a test, and currently resides near $26,460,” said Stockton. “Bitcoin has characteristics of a risk asset, and therein could remain under pressure until the equity market works off its own excesses.”
Retailer traders’ fear of missing out (FOMO) may be the big driver of both equity and crypto markets at the moment, but it isn’t clear if new institutional investors are buying more bitcoin, which could affect its price.
As CoinDesk reported previously, many institutions may be pausing bitcoin purchases until they have further clarification on how the new Biden Administration views bitcoin and other cryptocurrencies.
Read More:Bitcoin Falls as Miners Sell, Institutions Watch Yellen
While some negative comments were made by Treasury Secretary Janet Yellen last week, there hasn’t been any big statement from anyone else in the administration regarding bitcoin. To some, that is a positive sign.
“The Biden administration has paused processing the much-discussed and disliked proposed rule for U.S.-based crypto service providers that would stifle trading and asset transfers, which is improving sentiment and prospects for a market lift,” Blocktane’s Willock said.
Willock also noted on Friday the CME’s January bitcoin futures contracts expire. That exchange caters primarily to institutional investors, so many of its clients will likely be adjusting their positions after a “very volatile” first month of 2021 and will decide whether they need to take profits or reduce exposure.
Ether follows positive trends from bitcoin, DeFi
The second-largest cryptocurrency by market capitalization, ether (ETH), was up Thursday, trading around $1,332.19 and climbing 3.37% in 24 hours as of 21:00 UTC (4:00 p.m. ET).
Like most of the other cryptocurrencies, ether’s price has followed bitcoin’s recovery, according to Vishal Shah, an option trader and founder of derivatives exchange Alpha5. Another main driver is the growth of decentralized finance (DeFi).
“Blue-chip DeFi names have been performing quite well,” Shah said. “Ether still remains a proxy for that world.”
At press time, most DeFi tokens on Messari’s DeFi Asset tracker are higher. At the same time, the total value locked (TVL), as provided by analytics website DeFi Pulse, was at $26.4 billion for the past 90 days. On Wednesday TVL was at a high of $29 billion for the past 12 months, again according to DeFi Pulse data.
Digital assets on the CoinDesk 20 are mostly higher Thursday. Notable winners as of 21:00 UTC (4:00 p.m. ET):
0x (ZRX) + 17.49%
Cosmos (ATOM) + 14.38%
Stellar (XLM) + 13.15%
Tether (USDT) – 0.09%
USD coin (USDC) – 0.08%
Oil was down 1.1%. Price per barrel of West Texas Intermediate crude: $52.27.
Gold was in the green 0.03% and at $1842.15 as of press time.
The 10-year U.S. Treasury bond yield climbed Thursday to 1.053.