Bitcoin bounces back as main street invades Wall Street

• A fascinating set of catalysts has the King of Crypto on the rise again.

• We'll likely see more short-term crypto-market volatility due to a flood of new participants.

• What's happening in old-school markets is good for new-school markets; think "DeFi" ...

Bitcoin (BTC, Tech/Adoption Grade "A-") rebounded from its recent slide during the seven-day trading week ended Thursday. Altcoins kept pace with Bitcoin, and the market collectively moved higher.

Crypto's long-term outlook remains extremely bullish, but we may still see some short-term volatility. Indeed, crypto's been thrust into the spotlight again, as Elon Musk and many other media figures continue pointing to its future importance.

The Weiss 50 Crypto Index (W50) gained 12.24%, as Bitcoin and the other notable cryptocurrencies bounced back after last week's correction.

The Weiss 50 Ex-BTC Index (W50X) increased 13.18%, as the broader market acted in line with the King of Crypto.

Breaking down this week's performance by market capitalization, it's clear that cryptocurrencies of all sizes performed consistently. Small-caps showed the strongest gains, but the largest and medium-sized coins held their own.

The Weiss Large Cap Crypto Index (WLC) rose 13.34%, as almost the entire market rebounded this week.

The mid-caps slightly outperformed the large-caps, as the Weiss Mid-Cap Crypto Index (WMC) added 15.46%.

Small-cap cryptocurrencies set the pace this week, as the Weiss Small-Cap Crypto Index (WSC) soared 21.72%.

The entire crypto market roared this week, lifted by many positive catalysts.

Bitcoin's dominance over the market remained at 65%, as altcoins matched Bitcoin's rebound after the brief correction. Over the past couple weeks, we've seen altcoins begin to outperform the King, drawing questions of whether "altcoin season" had begun. This doesn't appear to be the case ... yet.

This week, equity markets were rattled by an army of Reddit traders on the community r/WallStreetBets targeting hedge fund short-sellers who themselves had targeted shares of GameStop Corp. (NYSE: GME).

In the beginning, these Reddit traders saw GameStop as an undervalued company with the potential to shift their business model from a brick-and-mortar retailer to a notable online presence.

Ryan Cohen, co-founder of Chewy Inc. (NYSE: CHWY), bought 13% of the company and acquired a total of three new board seats, and GameStop was off to the races. Traders then set their sights on a shortsqueeze, where the hedge funds would be forced to buy shares to cover their positions and propel the stock higher as they scramble to find shares to buy.

The battle between Wall Street and WallStreetBets escalated from capitalizing an undervalued stock opportunity to trying to wage war against the hedge funds. It's possible this is just the beginning, as short interest in GME is still over 100% of the available float because of hedge funds allegedly nakedshorting the company without having access to the borrowed shares.

A lot of the previous run-up has been attributed to a "gamma" squeeze, which is caused by forced buying by market makers. They're forced to buy because a flurry of out-of-the money options purchased by retail investors means they have to buy shares to "delta-hedge" their positions.

It could end poorly for the hedge funds that haven't covered their short positions yet, but they could still escape. However, Reddit traders haven't let them off the hook. Many WallStreetBets members post about never selling regardless of price action because they specifically want to inflict pain on hedge funds. They see it as a form of class warfare.

One Redditor who goes by "DFV," which is an acronym for his not-safe-for-work username, posts his daily profit/loss from his GME. Afterwards, an army of like-minded traders post a chain of "if he's still in, I'm still in" follow-up oaths.

Several brokerage firms, including Robinhood, restricted access to buying GME and other volatile target companies, such as AMC Entertainment Holdings Inc. (NYSE: AMC) and Nokia Corp. (NYSE: NOK), crushing demand and sending shares lower.

This caused public outrage because big institutions were still allowed to trade the shares, and many were accused of manipulating the price by buying and selling to each other.

Many have pointed to a significant conflict of interest because the company buying retail order flow from Robinhood, Citadel Securities LLC, injected part of a nearly $3 billion lifeline into Melvin Capital, one of the notable hedge funds short GME.

With the public's trust in these brokerages supposedly "democratizing" access to investments fading, the case for a decentralized investment mechanism becomes all the more necessary.

Cameron Winklevoss, co-founder of the Gemini crypto exchange, tweeted that he's filed for regular stock brokerage approval, doubtless in anticipation that retail investors will look elsewhere.

Additionally, Elon Musk put Bitcoin in his twitter bio, and it emphasized the rallying cry for financial instruments that can't be manipulated by rule-changing Wall Street. After he did this, Robinhood was forced to limit instant-buying cryptocurrency purchases due to the spike of demand.

This week's events really showcase some of the strengths of cryptocurrencies, and for more on that I'll turn to my colleague Alex Benfield:

The events of this week have shown the power that incumbents have over the average amateur investor. Robinhood shutting down the ability for customers to buy these Reddit-favored stocks is just the latest example of the downside of centralized exchanges.

In traditional finance, there are no other options for customers to freely trade stocks, and in cryptocurrency most people actually use centralized exchanges, like Coinbase and Gemini, as well. There are major differences right there at that level, though.

The centralized cryptocurrency exchanges don't talk and coordinate with each other. There are many, many different exchanges that users can take advantage of across the entire landscape. Most importantly, the main cryptocurrency exchanges don't have to answer to the same governing bodies as traditional exchanges.

Many traditional brokerage firms require market makers to fill the orders from their retail clients. Critics point to how this gives market makers potential leverage.

Traditional exchanges won't usually step in and halt trading of certain assets. But that's the key difference; in cryptocurrency trading, users have the ability to take advantage of exchanges that can't step in — exchanges that don't even have the means to intervene and affect the markets.

That's because in cryptocurrency users also have the option to use "decentralized finance," or DeFi, for their investments purposes as well. It's not as user-friendly, but all a user needs are an Ethereum wallet and an internet connection, and they can access a decentralized money market protocol.

DeFi by its very nature uses a protocol to settle buys and sells, not a centralized body or governing organization. And, since custody of a user's assets is never surrendered, nobody can stop a trade.

That's the key difference: In cryptocurrency, users can trade without ever surrendering custody of their assets to an intermediary.

The interesting development in all of this — the thing that will have ripple effects on the crypto industry — is how the r/WallStreetBets crowd has jumped into trading cryptocurrencies.

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