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Congress Is Putting Blame On Robinhood and Not Traders On Reddit

Vlad Tenev, CEO Robinhood, was one of the witnesses in today’s virtual hearing before the House Financial Services Committee over the cryptocurrency market volatility experienced in January. The representatives at the hearing were not interested in putting pressure on Reddit CEO Steve Huffman, but many gave Keith Gill the same props everyone did.

Not The Market Manipulators

The most likeable witness seemed to be Gill who introduced his remarks by stating that he was not a cat nor an accredited investor. The chain of events relating to Gill started in June 2019 when he posted about his investment into GameStop. He also said that GME was still a good buy today even at current prices. His statement comes even after the fact that wild GME trading has attracted criminal investigation from federal prosecutors. 

The has not been any scrutiny towards Gill and Huffman, which does much to quell widespread fear that events around explosive trading in GameSpot shares towards the end of January would start probes into social media platforms’ role in potential market manipulation. The House Antitrust Subcommittee also announced there would be more hearings to look into the biggest players in social media. Reddit was not in the red light today, however.  

Congressman Warren Davidson, one of the members of the committee noted this rare area of consensus, claiming that he was hopeful from the beginning since AOC was sticking up for Reddit users early on in the news, stating that the people had a right to trade. 

The Nature of Tenev’s Business Model

Republicans seemed to be more lenient than democrats when addressing activities of Robinhood. This was especially the case of the firm’s controversial shut-off of buying and not selling GME and some other high volatility stock. Therefore, everyone in the hearing wanted Tenev to answer.

Robinhoods nature of revenue model which is based on the sale of order flow, but advertises itself as commission-free was under mass scrutiny as was its dependence on a $3 billion capital injection to meet collateral requirements.

While questioning Tenev, Congressman Antony Gonzales stated that a vulnerability was exposed in Robinhood’s business model. He went ahead to claim that it would not be right for his constituents to have their shares liquidated in the event they failed to make a capital call.

Many called out Robinhood on its claim to be democratizing finance. Although Tenev pushed $35 billion as Robinhood users’ total gains, Jim Himes claimed that anyone schooled in finance could see was meaningless without a rate-of-return.

Today’s hearing was not very educational, but revealed the hostility towards Tenev. There did not emerge any concerted sense of solutions to the epic trading that fueled GameStop’s (GME) great rise at the end of January even with Chairwomsn Maxine Water’s admonition that the hearing was not a political theater.  

Image courtesy of Wikimedia Commons

Edward Nored

Edward Nored

Edward is a naturally curious BTC lover with a deep interest in blockchain, fin tech, fields which he dedicates his time to researching.


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