Melvin Capital Posts 53% Jan Loss Led by GameStop Shorts

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In Brief
  • Melvin Capital, one of the largest hedge fund targets of WallStreetBet's (WSB), lost 53% in January.

  • Seen as unjust manipulation, a coordinated play from WSB members pumped up the GameSpot price.

  • This led to exchanges shutting down buy orders, stirring accusations of manipulation.

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In the latest development of the David and Goliath GameStop story that has captivated retail traders everywhere, hedge fund Melvin Capital has reported massive losses for January.

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In the culminating loss of billions for hedge funds and their managers, it appears that Redditors at WallStreetBets have pulled off the impossible. The Wall Street Journal (WSJ) reports that Melvin Capital, one of the largest firms behind the aggressive GME shorts, has lost 53% of its investments in January.

Hedge funds have been shorting GameStop (GME) stock with more shares than what is available. This means they were artificially pushing down the price beyond regular market conditions. This subsequently created a massive short squeeze opportunity.

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GameStop: Visible Wounds From a Digital Revolution

Melvin Capital wasn’t the only hedge fund to feel the burn. Other firms like Citadel and Point72 also suffered heavy losses. Redditors clearly targeted Melvin with this financial play. According to the WSJ, one Redditor exclaimed that there was “only 47% left to go.”

This massive market movement led to decisive action by hedge funds and trading applications, which shut down the ability to buy GME stock. This presented a conflict of interest, naturally favoring short players.

American politicians from both sides of the political spectrum have voiced their concerns at the blatant alleged market manipulation. Many in the blockchain and Decentralized Finance (DeFi) space have renewed calls for decentralized and permissionless infrastructure.

How Blockchain Can Prevent This

One of the main goals of blockchain technology is to create an inclusive, censorship-resistant platform that cannot be abused. After widespread outrage on the incident, many claim that decentralization is the key to future fair markets.

Asset tokenization has not yet been widely adopted for securities with a greater focus on non-fungible tokens (NFTs). But developers are building out new networks, moving closer to mainstream adoption every day.

Blockchain platforms are still slow compared to their traditional counterparts. They need significant throughput upgrades. This is necessary to handle the number of transactions currently seen on the stock market. The innovation is coming, and the groundwork is there.

Melvin Capital and other similar firms may have limited power in future blockchain trading networks.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
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Harrison is an analyst, reporter, and lead specialist at BeInCrypto based out of Tel Aviv, Israel. Harrison has been involved in the cryptocurrency space since late 2016 and is passionate about decentralized ledger technology and its potential.

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