What Is Dogecoin and Why Do People Buy It?
Now that we’ve discussed the GameStop stock frenzy , it’s time to find out about Dogecoin. Why is the collective mind of retail investors pumping a little-known cryptocurrency with the Shiba Unu dog as a mascot? Why, for Loletz . With the help of Reddit and Elon Musk, Dogecoin is up 600% in price in the last 24 hours . As a trading move, it makes a lot less sense than the GameStop madness, but it’s kind of a gist, too. Here’s a look at what’s going on.
Why Dogecoin?
Dogecoin, named after the doge meme , is similar to Bitcoin. It is a cryptocurrency that allows peer-to-peer transactions on a decentralized network. Cryptocurrencies are extremely volatile, which is why they attract so many speculators. And the latest speculative frenzy has beenfueled bySatoshiStreetBets Reddit, TikTok, and tweets from Elon Musk, who is having fun with the retail investor phenomenon.
According to Yahoo! Finance , a single three-word tweet from Elon Musk in December raised Dogecoin by 20%.
How is this different from GameStop’s or AMC’s assumptions?
The retail investor frenzy surrounding stocks like GameStop and AMC was initially associated with short selling . Wall Street traders have been aggressively shorting companies struggling to survive the pandemic, and in the case of GameStop, they have cut more stocks than they actually have. This left them vulnerable to short-term pressure from individual investors organized on Reddit who bought up stocks and raised prices, costing hedge funds billions .
For retail traders, it was an opportunity to stick to Wall Street and also make some money on the side. It actually makes sense as a trade – albeit a risky one – as it is difficult to predict when a highly inflated stock price will peak and when it will fall.
Dogecoin, on the other hand? Enthusiasts are simply pumping up the currency for this, and many investors claim they will hold their positions until it reaches the $ 1 target set by Reddit (currently just under 5 cents). Unlike GameStop, there is no company to invest in and no short sellers to take advantage of. There really isn’t much of a reason why Dogecoin would be worth buying other than the fact that it is essentially a Bitcoin clone named after a meme.
“It’s a mystery to me why Dogecoin is so highly regarded,” says Adrian Lee, senior lecturer in finance at the University of Technology Sydney, in a CNET article .
How does this match up with GameSpot’s or AMC’s assumptions?
The common denominator of all these investment stories is that many small traders do it for fun and with cash. Many of them are determined to hold their bets until they reach a high price target, such as $ 1,000 for GameStop (which is a far cry from its current position of $ 315). The redditors urged each other not to cash out, and they have shown remarkable discipline in not doing so, despite the risks that prices could fall at any moment.
While money can be made from speculation, it is hard not to interpret these rates of retail investors as a kind of performance – a non-utilitarian form of self-expression. After all, according to CNBC, one of the first posts on SatoshiStreetBets read, “Let’s make DOGECOIN something. Here is the post. “
So much foam
It is unclear how the rise in the number of individual investors will affect the stock market over the long term, or whether individual stock bubbles like this one will become more common (the SEC is monitoring the situation , although it is not known what they will or could do to regulate this).
Dogecoin speculation has all the hallmarks of a frothy market , which is defined as a market in which investors ignore market fundamentals in order to push the price of an asset beyond its objective value. It seems too obvious to point out as so many traders don’t care about the fundamentals and do it for fun. On the other hand, serious investors who are late for the party may not get the joke.