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November 1, 2021 - 8:00am
Robinhood, the commission-free trading platform “on a mission to democratize finance for all”, was never shy about its lofty vision. The company went public in July after being at the forefront of the meme stock revolution, in which stock sales were driven not by company performance but by its perceived virality on social media. This included the infamous Gamestop saga, where a short squeeze resulted in a 1,500% increase in its share price over two weeks.
But for all its efforts to become the platform of the everyman investor, Robinhood has been struggling. Last week, it saw its aptly named ticker $HOOD plunge over 10% in post-market trading last Tuesday, after publishing a disastrous earnings report. Compared to last year’s “net loss of $11 million,” it read, this quarter’s “net loss [reached] $1.32 billion” (emphasis added).
For those who’ve kept a close eye on this constantly evolving period of monetary madness, Robinhood’s appalling results will come as no surprise. As expected, their main clientele of financially repressed millenials has grown tired of spending endless hours gambling on a plethora of meme stocks. Instead, they have rotated swiftly off its platform and into the so-called metaverse, trying to profit from new-age contraptions like non-fungible tokens (NFTs) — and Japanese dog-themed cryptocurrencies, which Elon Musk shills on Twitter.
Robinhood, of course, has yet to support these types of assets, but failing to provide exotic crypto products on its platform is not the chief reason for its recent malaise. In fact, this should be the least of its worries. To say the “people’s broker” has abandoned its modus operandi of disrupting Wall Street’s financial monopoly is an understatement at best.
When Vlad Tenev and Baiju Bhatt founded Robinhood after attending the infamous Occupy Wall Street protests in 2011, they were inspired to create a virtuous brokerage company that would level the playing field, where the everyday guy and gal possessed the same trading privileges as the financial elite.
At least, that’s what they told us, anyway, because that vision and its accompanying narrative quickly evaporated. Slowly but surely, Robinhood’s upper echelons matured into fresh recruits of the Wall Street colossus, agents of the powerful corporations that have lured us into exchanging our time and money for almost always no gain — or worse: heavy losses.
Ever since renegade media outlets like ZeroHedge started reporting that the company had sold most of its order flow to “rival” Citadel Securities, Robinhood’s democratic renaissance narrative started to crumble. But the biggest shot to its credibility came when it halted WallStreetBets’ infamous assault on enemy short-sellers betting on the death of failing video game retailer Gamestop. Many convinced themselves that insiders had attempted to curb financial establishment losses.
Only in the past few last months, that scepticism came back, with Vice reporting on “conspiracy theories” surrounding a lawsuit document filed in January 2021, which speculated Citadel CEO Ken Griffin and Robinhood CEO Vlad Tenev had spoken, “not specific to this crazy issue”, amid the meme stock halt. It also showed Securities COO James Swartwout messaging in an internal chat, “I sold my AMC today. FYI,” two days before Robinhood restricted trading.
This story was another sign that Robinhood was never going to come close to disrupting the financial power structures, nor was it going to bring about the “democratization of finance,” let alone a revolution. For a while now, we’ve overlooked the glaring evidence and events debunking this freedom-loving, equality-oozing narrative, from FINRA issuing its largest penalty ever to the company for causing “widespread and significant harm” to its customers, to its executives assigning themselves above-average stock compensation on taking the company public.
Though, now, as its latest results indicate, we may no longer want to support a company espousing an agenda that upholds the status quo. Robinhood has joined the likes of the “crypto rebellion” on an ever-growing list of pseudo liberation movements, which end up revealing a depressing, uncomfortable truth in the cheap money era: monetary revolutionaries won’t just fail to subvert the financial power structure, they will likely abandon their initial cause completely to become its latest foot soldiers.
Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.
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SubscribeI’m a Robinhood shareholder. The commission free trading emphasized in the first sentence is no big deal, as almost all trading is now commission free. Yes, some firms require minimum investments, but almost everyone in the US at least can trade commission free.
What makes Robinhood attractive–some might say addictive–is the fun and game-like way the platform operated. This is a bit like Jewel and other vape companies introducing flavors that might appeal to younger clients and potential clients. If the website appeals to younger and non-traditional clients, so be it. If they draw new in new clients to learn about the financial markets, that, mostly, is a good thing.
But if the don’t charge for trades, they must make money somehow. Is it on “free cash,” getting interest on cash held in accounts? Options trading, which is often lucrative for the broker-dealer, or payments for “order flow,” where Robinhood (and virtually all broker dealers) receive cash when feeding business to a particular client? As long as the best interests of Robinhood’s clients are protected, this is simply business as usual.
Let’s hope that it was never Robinhood’s goal to smash capitalism, smash the patriarchy, destroy America–you would be confusing Robinhood with BLM. Creative and fun? Yes. Revolutionary? No. Robinhood, for now, offers a colorful and unique trading platform to its clients, and it will succeed or fail based on market forces, as it should.
They will succeed or fail based on market forces, that is, as long as the government does not bail them out when a ‘crunch’ comes, with the reason for bailing them out because they ‘too big to fail’!
Completely agree. Too big to fail is an obscene concept. And companies shouldn’t be allowed to grow so big that they become, in some eyes, TBTF.
Too Big To Fail is so 2008, now it is the entire Stock Market is ‘Too Big To Fail’ collectively. USA currently pumps 120 BILLION into bonds and Mortgage Backed Securities every month, as QE Infinity, to keep the stock market climbing to insane levels, and hold interests to Zero, and to create inflation To melt away the National, and corporate, debt. That all this is destroying the Middle Class, and Working Class is no matter to them.
Daniel DeMartin-Booth says fully 20% of USA companies are ‘Zombies’! (companies which are unprofitable, but instead of letting them die they are pumped with free money to save the jobs and equity market. Zombies because they are walking dead), and once the free money stops they will keel over. Now they are such a huge thing they will take down the economy if allowed to die, and so will keep getting their stimulus…
If they are selling order flow to HFT’s they are definitely not acting in the best interests of their client. HFT’s front load their trades onto the order flow so they are guaranteed to profit at the expense of their clients.
This meme stock craziness was created by the mad USA government ‘helicoptering’ out Trillions of $ to people who had no need for the money, to ‘Stimulate’ the economy. The young ones looked for something to do with it – and there was Robinhood….
This was taking investing to Speculating, and then to gambling.
But the players felt ‘why not’, it was the ‘House Money’ they were gambling with, so go for the high risk/high gain things as it was not enough to matter, but enough to be something if a gamble paid off.
(A great many others just paid down debt with the ‘Stimulus $’, and so – gambled on the stock market and Crypto – or debt paid down = NO stimulus resulted – at a cost of Trillions. Some say the stimulus of 20 – 21 resulted in creating 10 cents for every Dollar spent, for a loss of 90 cents, and so in reality ended up just doubling the wealth of the very wealthy, and increasing National debt past the breaking point, and doing great harm by the huge inflation it spawned.)