Citadel plans to redeem $500 million from Melvin Capital after WallStreetBets face off

Rick Steves

It was the Gamestop trade against Melvin Capital that made a name for the WSB subreddit.

Citadel plans to redeem approximately $500 million of the $2 billion invested in Melvin Capital earlier this year to make up for the investment management company’s exposure to short bets it made in Gamestop (GME) – a favorite target for the WallStreetBets subreddit.

According to the WSJ, it could not determine whether Citadel plans to redeem more money later. Citadel is expected to remain a large investor, the report added.

Gabe Plotkin’s Melvin Capital lost 49% on its investments during the first three months of 2021 despite posting annualized returns of 30% between 2014 and 2020.

In late January 2021, Citadel invested $2 billion and Point72 joined with $750 million in a sensitive time for Gabriel Plotkin’s firm. The whole short-selling fiasco became a cautionary tale for Wall Street to measure their short bets in a more realistic way.

It was the Gamestop trade that made a name for the WSB subreddit. The forum and its leadership rose to such prominence that in May it launched a blockchain-powered app aimed at combating market manipulation in traditional finance.

The step towards blockchain-based finance represents a change of course for the unofficial, hierarchy-free movement of largely pseudonymous participants, whose shared mission is to fight back against corrupt institutions and to end dependence on them altogether.

Earlier this month, WallStreetBets doubled down on its crypto app, further synthesizing DeFi and traditional markets, with the launch of single stock offerings on the WallStreetBets decentralized application (WSB DApp).

Enabled through a strategic partnership with Mirror Protocol, a leading synthetics protocol for on-chain price exposure, WSB DApp users are able to leverage order routing to trade fungible synthetics that track the price of real-world single stocks, effectively making the stock market available on the blockchain.

The DeFi native WSB DApp allows for the elimination of time barriers, allowing for investment and trading 24 hours a day for shares listed on the world’s stock exchanges.

It also promotes the removal of geographic barriers and foreign stock exchange restrictions, enabling investors to have exposure to assets in a global financial marketplace.

The platform combines cryptocurrency and traditional market assets in a non-custodial portfolio, meaning investors maintain full control of their deposited assets and can withdraw them at any time.

This also means the WSB Dapp is not compliant with the Securities and Exchange Commission as was made clear by SEC Chair Gary Gensler last month.

“There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives”, said the SEC Chair.

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

“If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange”, he added.

Read this next

Retail FX

Pepperstone adds Capitalise.ai analytics and automated trading tools free of charge

“We look forward to bringing significant value to Pepperstone traders and making a real, positive impact in their daily trading habits. We are excited to welcome them on board.”

Retail FX

FP Markets wins Best Global Value Broker for 4th consecutive year at the 2022 Global Forex Awards

“We greatly appreciate the continued international recognition as at FP Markets we pride ourselves on these attributes and these prestigious awards are testament to the hard work from our global team to always provide our clients with the ultimate trading experience.”

Inside View

How to Engage Your Customer at Every Stage of Their Journey

As many as 89% of successful businesses say that providing assistive customer experiences is critical to their growth. That’s because a mere 5% increase in customer retention can boost profits by 25% to 95%.

Industry News

CFTC fines Chinese firms Chinatex and COFCO $720,000 for wash trading

Chinatex traders engaged in wash trading in order to liquidate a long position in the account of an affiliated company and re-establish the position in its own account, to the ultimate benefit of its parent company, COFCO.

Industry News

US-based operation of Brazilian broker XP fined $500,000 for recordkeeping failures

“Proper recordkeeping is vital to protecting our markets and market participants from fraud and manipulation. This case serves as another example of the Commission’s intent to vigorously enforce the recordkeeping obligations of its registrants.”

Digital Assets

Bitfinex announces integration of USDt on Polkadot

Polkadot is the brainchild of British computer programmer and Ethereum co-founder and former CTO Gavin Wood.

Executive Moves

FPG hires ex-Fireblocks Chris Hazelton to head marketing at crypto prime broker

“Chris’s experience as a marketing leader at several exceptional businesses will help us refine our message to an institutional audience that’s overwhelmed with new information and show tangible examples of how we’ve helped customers like them scale successfully in crypto.”

Podcasts

FinanceFeeds Podcast Ep. #6: Gold-i’s Tom Higgins talks efficiency in FX and inner workings of Crypto Switch

On its sixth episode, the FinanceFeeds Podcast welcomed Tom Higgins, the founder and chief executive of trading systems integration provider, Gold-i.

Digital Assets

Coinigy launches Crypto Screener Tool for spot, DeFi, and derivatives

“Traders can tap into a vast dataset covering the entire crypto ecosystem, which spans nearly a decade, to identify opportunities and act quickly. This is an essential tool for all active and professional traders, including day traders.”

<