The fallout from the Sam Bankman-Fried FTX scandal keeps spreading. Reuters broke news yesterday that the Department of Justice is preparing to seize a $465 million stake in the popular trading app Robinhood linked to FTX.

“The government’s move is the latest response to a number of bids undertaken by attorneys for FTX and its legal counterparties to litigate — and, in several cases, re-litigate — the ownership of assets that had been shifted and shunted between FTX, Alameda and outsiders,” according to crypto news outlet Blockworks. 

The development did nothing to inspire confidence in the government’s attempt to clean up the mess caused by SBF’s historically epic fraud… 

And SBF’s stake in the trading app, which was marketed as a way to democratize investing, sharing Wall Street profits with Main Street, underscores the assertion that the app is, in fact, an arm of the Wall Street insiders themselves.

The idea of easy, convenient, no-strings-attached trading sounds great for retail investors. 

Which begs the question, what’s in it for the likes of SBF?

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Your Rundown for Thursday, January 5, 2023...

Extreme Selling Pressure

Vice News broke down the arrangement as follows:

“It’s worth examining once again how [Robinhood] makes money: namely, by selling users’ trades to other large firms before they’re actually executed. 

“Those firms make money by effectively seeing what the retail investors on Robinhood are going to do before they actually do it, and acting accordingly. 

“Those firms are basically buying information that then informs their own trades.”

In other words, Robinhood essentially traffics in insider trading. 

That much was alleged by retail traders when Robinhood halted trading of certain “meme stocks” several years ago. 

It’s worth keeping in mind if you’re tempted to take up day trading on Robinhood as a personal get-rich-quick scheme. 

And for those of us who’d rather take a more conservative approach to investing, remember that the phenomenon has already introduced more risk in the stock market. 

“Most young traders aren’t interested in investing. They want to get rich without the patience and commitment it takes to make a solid long-term investment,” Dan Amoss wrote about the situation. 

“So, once momentum starts to fade for certain stocks, selling pressure can become extreme...

“The next market correction could be a doozy because so many new traders have chased strategies that will ultimately prove fruitless.”

We’re already seeing that come to fruition with some of retail traders' favorite sentiment-driven stocks tanking, including Tesla which has plummeted 70% off its highs, with many analysts fearing more pain ahead. 

Market Rundown for Thursday, Jan. 5, 2023

The S&P 500 is down 0.95% to start the trading day. 

WTI Crude oil has ticked up 0.1% this morning. 

While Gold is down 1.08%. 

And Bitcoin is down 0.32%, still trading sideways, currently at $16,790.40.

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