Melvin Capital was, for lack of better polite words, damaged spectacularly. The entire journey had caused the hedge fund to lose billions. The firm had, before the retail investors of Reddit had smacked the beast hard, boasted a total of $12.5 billion in assets. Now, however, it has just over $8 billion.
Melvin Was Halved In Value
This information, coming by way of a Wall Street Journal report, highlighted that the $8 billion also included a $2.75 billion investment from Point72 Asset Management and Citadel earlier this month in a bid to keep the company afloat. Crunching the numbers, people familiar with the firm concluded that the company had lost a total of 53% within the span of a month.
The report itself quotes a client, who stated that Melvin has opted to de-risk its investment portfolio by a massive degree after the Gamestop stock short selling controversy.
Melvin has taken this development as a harsh lesson, it seems, with people familiar with the matter explaining that its portfolio has been improved to exit securities quickly, should they need to. Both Melvin and Citron Capital, another firm that took part in the Gamestop shorts, were forced to close their Gamestop positions last week.
An Aftermath To Write Home About
The great GameStop short squeeze’s effects are far from over, however. Major players within it are now subject to outrage online, especially Robinhood, the free trading platform. Robinhood itself holds ties to Melvin, and has forced retail traders out of the market by restricting Gamestop stock trading as the price surge was just getting rolling.
As one would imagine, Robinhood has now been accused of market manipulation thanks to the refusal of financial tools given to major hedge funds.
The SEC Is Getting Involved
This escalated so much that the US Securities and Exchange Commission (SEC) was forced to get involved. On Friday, the watchdog announced that it would start to closely review these regulated entities’ actions during this time. As a result, melvin, Citadel, Robinhood, and any other retail investor from r/wallStreetBets is on the potential chopping block. Robinhood, however, seems to have its days numbered thanks to facing two class-action lawsuits within federal courts of New York and Illinois.
At the time of writing, Gamestop’s stock price stands at $325, having closed its markets on Friday. In the past 24 hours, the asset has seen an increase of 67%.
Time will tell how this debacle will spread out, but this development has been quite exciting and entertaining for many a bystander. With any luck, the market will change for the better, but the likelihood is low for that one.
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