Dogecoin: The Internet Sensation
Over the past few years, Cryptocurrency has become increasingly popular with retail investors. The past few months have only amplified that popularity with the growth of economic stimulus. Some altcoin cryptocurrencies have soared, with some pushing almost 1,000% increase from last year. However, In the past several weeks, Dogecoin has been pushed to the front of the media headlines thanks to Chinese app phenomenon, TikTok.
Dogecoin started as a funny and ironic crypto with the symbol of the internet meme “doge” back in 2013. Although it originated as a joke in December of 2013, it quickly gained traction and became a networked, self-regulating, peer-to-peer community. Just last year, Elon Musk called Dogecoin his favorite cryptocurrency because of its irony, but the crypto has great ease of use which is it’s main attraction. In the first few days of July, a viral TikTok proposed the thought of what could happen if everyone who saw the video bought dogecoin? “Could they stop the price from going up?” He asked. The video showed a side by side of $1,000 worth of Dogecoin at $0.00234 turning into $426,985 if the crypto hit $1. After this video gained traction others started to hop on the train. With one user stating that if all 800 million tiktokers invested $25 they would each have $10,000 when the crypto hit $1. A classic get rich quick scheme, wearing a new look, and relying on viral videos to make it happen. They say you can’t teach an old dog new tricks, and that was the case for Dogecoin.
Over the course of three days, post-TikTok virality, Dogecoin started to rapidly increase. From July 5th to July 6th. Dogecoin had already increased by 27.7%. An increase of this amount in the S&P 500 would be incredible, but in the crypto world, this increase is just an average day. However, by July 9th the altcoin increased over 95% from its price on July 6th which is a huge increase, even for a crypto.
Dave Portnoy, the new day trader and Founder of Barstool Sports, called it “a pump-and-dump, and a bubbly rosé.” “Day-trade Dave” may be inexperienced and new to day trading, but even he could see right through this scam. The SEC does not regulate the cryptocurrency markets. This may not be a “pump-and-dump” exactly, but Meena Krishnamsetty of Insider Monkey describes it this way. “It is more like a stock manipulation scheme where the participants are mostly aware of the risks and willingly participate.” Even looking at it from this point of view, instead of a “pump-and-dump”, it still sounds shady. The SEC may not regulate the cryptocurrency markets, but they have been known to step in during scams and bring charges in crypto-related cases. The scheme caught so much attention that even Dogecoin warned against it in a tweet stating,
“Be mindful of the intentions people have when they direct you to buy things. None of them are in the spot to be financially advising.
Make choices right for you, do not ride other [sic] people's FOMO or manipulation.
Stay safe. Be smart.”
The TikTok day traders had their way with inflating the price, but it didn’t last for very long. On July 10th Dogecoin had a massive decrease and it fell by 63%, a little more than half of its original spike. It was investors who bought low trying to pump up the price so that they could sell higher and leave some other person holding the bag. The manipulation of the market actually worked, but it was incredibly short-lived. The manipulation of the market still only caused the price to increase about an eighth of it’s all-time high in 2018. So, the scheme to pump Dogecoin only worked to a small extent.
On January 5th of 2018, Dogecoin hit its peak, just over a penny. Since then, Dogecoin has remained between $0.001 and $0.003. Some may look at this as a very weak or unwise investment. However, the CEO of the major cryptocurrency exchange OKEx, stated that Dogecoin is not a joke currency. He goes on to say that Dogecoin has had a very healthy development and that it shows longevity. Despite its low cost, Dogecoin’s inherent value is based on usage. In the beginning of March, it’s market cap was around $360 million. The altcoin was started as a joke and now has a value of $360 million and has already increased to $427 million since March.
“The cryptocurrency market has evolved erratically and at an unprecedented speed over the course of its short lifespan” (Chohan). As cryptocurrencies become increasingly more popular with young investors, it may be time for the SEC to step in and start regulating the markets. Bankrate ran a survey and 9% of millennials think that cryptocurrency will be their best performing asset long-term. Crypto makes it easier to exchange large amounts of money which creates opportunities for scammers.
On July 15th, a large Bitcoin scam took place. The scammers hacked into Ttwitter and took over the accounts of many verified celebrities and politicians. The hackers sent out tweets from Elon Musk, Joe Biden, Kanye West, and many other high ranking society members claiming that for every amount given they would send back double as charity to the community.” In 3 hours of the security breach, the hackers made about $118,000. The SEC needs to get involved with the cryptocurrency markets to prevent widespread scams. While this was a Twitter breach, it would be much harder to pull such a thing with more regulations in the market.
As cryptocurrencies and altcoins become increasingly more popular, it is important for regulations to be in place to prevent market manipulation, “pump-and-dumps”, and scams. Investing in crypto is very risky already, with most of them having very high volatility, technology development, and speculation. As the cryptocurrency market continues to emerge, it is important to have regulations in place.
Works Cited:
Chohan, U. (2017, August 25). Cryptocurrencies: A Brief Thematic Review. Retrieved July 17, 2020, from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3024330
