Odds Favor Robinhood Will Not Declare Bankruptcy in 2021

Pedestrians pass a GameStop store on 14th Street at Union Square, Thursday, Jan. 28, 2021, in the Manhattan borough of New York. Robinhood and other online trading platforms are moving to restrict trading in GameStop and other stocks that have soared recently due to rabid buying by smaller investors. (AP Photo/John Minchillo)
  • Odds are -140 favoring that brokerage house Robinhood won’t file for bankruptcy in 2021
  • The zero-commission brokerage is caught in the middle of the GameStop/Wall Street Bets controversy
  • Those who believe Robinhood is going to declare bankruptcy can get odds of -110 in this prop

The fable of Robin Hood was that he stole from the rich and gave to the poor. In real life, the design of zero-commission brokerage Robinhood was to provide the little guy the chance to compete with the monied ranks on the stock market.

However, creating that chance blew up in Robinhood’s face last week. Now, the company may be in danger of bankruptcy.

However, oddsmakers appear somewhat confident that this won’t be happening. A prop wager on the subject is offering -140 odds favoring that Robinhood won’t be filing for bankruptcy in 2021.

Odds Robinhood Files for Bankruptcy in 2021

Outcome Odds
Yes -110
No -140

Odds as of Feb. 1

Those who are of the opinion that Robinhood will be declaring bankruptcy can access -110 odds on that wager.

The GameStop Gambit

The major players in this dilemma that is placing Robinhood in jeopardy are a Reddit group called Wall Street Bets and the company GameStop. The latter is a video-game retailer that was looking to be on its last legs.

Hedge fund Melvin Capital was shorting the stock, meaning that they were betting on the stock to go down. However, the Wall Street Bets group got wind of this and began buying up GameStop stock. In the process, they drove the price of the stock from $5 to as much as $500 a share, thus foiling the plans of the short sellers.

Stock market insiders complained that Wall Street Bets, which has six million members, was treating the market like it was a casino. However, members of Wall Street Bets are viewing themselves as protectors of failing companies from predatory hedge funds. Think of them as a virtual version of the Occupy Wall Street movement.

Robinhood Caught in the Middle

Most of these Wall Street Bets folks were using Robinhood to purchase their stocks, and that was bad news for Robinhood. They work with one of the world’s largest hedge funds, Citadel LLC. Citadel was backing Melvin Capital in the $1 billion range, and weren’t happy about Wall Street Bets putting the squeeze on Melvin Capital.

Thus, when Robinhood placed severe restrictions on certain stocks, it caused an uproar among the company’s customer base. Robinhood’s choice of placing GameStop in liquidation mode – meaning stocks in the company could only be sold, not purchased – was seen as a method to protect Citadel’s investment in Melvin Capital.

This ended up causing a significant percentage of Robinhood customers to vow they’d never trade with the company again.

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Bankruptcy an Unlikely Outcome

Before all this hit the fan, Robinhood was planning to offer an IPO. Now it’s in need of being thrown a financial life jacket.

Robinhood is drawing from a line of credit worth as much as $1 billion to prop up its flagging business. The company was reporting Monday it has raised $2.4 billion in capital from investors. However, Robinhood could still be claimed as a victim, though it won’t be via bankruptcy.

If Robinhood meets an end through this controversy, it’s more likely that they will be absorbed by a much larger firm and rechristened as a different brand. There’s value in what Robinhood offers, so the company won’t be allowed to go under.

The irony of this scenario is that the same hedge fund sharks that Wall Street Bets halted by utilizing Robinhood’s services may soon be encircling Robinhood.

Pick: No (-140)

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