October 1, 2021
Photo Illustration: Spencer Platt/Getty Images; Christopher T. Fong/Protocol
Hello and welcome to Protocol | Fintech! This Friday: Robinhood's GameStop wound; Gary Gensler, cryptoskeptic; and Square meets TikTok.
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"Are we good guys or bad guys?"
In Disney's 1973 "Robin Hood," Robin laughs off Little John's question about the whole robbing-the-rich thing: "Rob? That's a naughty word, we never rob! We just … borrow a bit from those who can afford it."
Robinhood CEO Vlad Tenev could use some of his corporate namesake's panache right now. Once boosted by fans of its no-commission trading on Reddit, he now faces a Twitter mob. They've gone from swapping signup codes to posting snippets from legal complaints in lawsuits filed after January's GameStop debacle.
This much isn't disputed: Robinhood blocked buying of GameStop, AMC and other meme stocks on Jan. 28. That prompted dozens of lawsuits, now consolidated into the two related complaints Robinhood faces in a federal court in Miami.
In the aftermath, the company swatted away accusations that it had restricted trading in GameStop and other stocks to help a big hedge fund get out of a short squeeze. Robinhood has said it had to block the trades to meet regulatory capital requirements, which can dramatically increase for volatile stocks.
But the lawsuits seek to paint a different picture, presenting internal company communications that suggest the company did shut down the trades under pressure from Citadel Securities, a key partner.
Robinhood and Citadel denied that they did anything illegal. But the uproar has renewed the question: Whose side is Robinhood on?
The lawsuits present suspicious conversations. The complaints cite a host of emails and chat messages uncovered in the case. It should be noted that it's hard to figure out the context of some of the exchanges described in the complaint.
"I sold my AMC today." That was the startling admission Swartwout made in an email cited in the other related lawsuit.
Robinhood and Citadel pushed back loudly. Robinhood blasted the lawsuits as an "attempt to create a false narrative of collusion," and vowed to "work vigorously to continue correcting the record with the facts," a spokesperson said.
Is that enough to quiet Robinhood's critics? Hardly. And it's reasonable to expect that fresh filings in the twin Florida lawsuits will continue to feed suspicions.
GameStop represented a loss of innocence for Robinhood's customers. Blocking meme-stock purchases may have been inevitable, given Wall Street's antiquated system for settling trades (which Tenev has criticized). But it made many traders feel like the company wasn't on their side. The company may have answers for the questions raised by the lawsuits. But Tenev has to remember: He's getting tried in the court of public opinion, too.
-- Benjamin Pimentel
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An Ethereum co-founder wants to end "crypto nationalism."Polkadot co-founder Gavin Wood explains why he left the blockchain to build a multichain world.
The CFPB has a new boss. Rohit Chopra has been confirmed as head of the Consumer Financial Protection Bureau.
Buy crypto now, maybe spend crypto later? Affirm, the big "buy now, pay later" company, will let users buy and sell cryptocurrencies in a major push deeper into financial services. One small wrinkle Affirm may need to iron out: Its terms of service currently ban cryptocurrency purchases.
What fintech trend is most troubling for you?
"Buy now, pay later" can be a life raft for economically stressed individuals in periods of unemployment. However, easy-to-acquire credit can encourage people to spend money they don't have on nonessentials and potentially compromise their longer-term credit rating or financial health.
What fintech company have you been most impressed with this past year?
Companies like Grifin that are making the stock market more approachable have been most impressive to me over the past year. [Editor's note: DriveWealth powers Grifin's stock trading.] Investing can be an emotional experience for first-time investors. But with Grifin, buying stock is as easy as buying a cup of coffee. Every time a user spends money at their local Starbucks or Whole Foods, the app automatically invests $1 in that company. It lets consumers invest small amounts of money into the very brands they consume.
What fintech sector or company is most underrated or overrated right now?
Crypto is probably both the most overrated and underrated fintech sector right now. Crypto as a fungible currency, or a national currency like in El Salvador, is overrated. Crypto pricing is still highly volatile, which makes it unsuitable for investors with low risk profiles or capital preservation strategies. Furthermore, it takes up to 10 minutes to confirm if the funds are good, which slows the pace of the transfer of payment for goods and services. Enhancements that are coming later this year in bitcoin will make confirmations near-real time.
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That's the value of bank mergers and acquisitions from January through September, which is on pace to make 2021 the biggest year for such deals since the dire days of 2008, which saw a lot of shotgun bank marriages.
Thanks for reading — see you Tuesday!