A joke-made cryptocurrency exploded in plain sight on Wall Street on Monday, with dogecoin skyrocketing sending its 2021 yield above 8,100% – more than double the gains on the S&P 500 including dividends , since 1988.
The rise of Dogecoin from an original meme to a widely traded asset worth around $ 50 billion – more than Marriott International Inc.
or Ford Motor Co.
—Is the latest act of financial alchemy in rapidly displacing individual investors who have used access to no-fee trading platforms and a wave of government stimulus funds to transform markets over the past year .
The rise of cryptocurrency is reminiscent of GameStop Body
an astonishing advance earlier this year, an episode in which traders rallying on Reddit and other social media platforms turned a former mall retailer into a stock market superpower.
This time around, dogecoin buyers took it a step further, turning what was supposed to be a spoof into a real asset, offering some traders who stacked early with unimaginable gains. The latest stage of the frenzy is focused on Tuesday after it was branded as “Doge Day” in online forums, a loosely curated bid to push the price of the cryptocurrency to $ 1, from a closing price of 5 p.m. ET by nearly 39 cents on Mondays and under a dime in January.
Both episodes highlight the scale and power of today’s retail environment, in which organized efforts in online communities can have a surprisingly large impact on market prices. They also reflect expectations that prices will continue to rise and, as such, carry risks that these sudden fortunes will be wiped out when market winds change.
“A lot of people who come in haven’t been around that long and haven’t seen the bitcoin crash,” said Robert Drach, asset manager at Drach Advisors in Tallahassee, Fla. He oversees investments for individual clients.
So far, the rise and fall of favorite assets in online forums has been largely contained. GameStop’s skyrocketing peaked in January and collapsed without hitting major clues. That said, many investors are keeping an eye out for these market quirks, believing that a sharp drop in the price of dogecoin or bitcoin could prompt hedge funds and other large investors to cut risky holdings and contribute to a wider pullback. risk.
While there is no reason to worry at this time that stocks are on the verge of a sharp pullback, the rise in dogecoin “feels like a bubble to me,” Drach said. “This still concerns me, not just for dogecoin investors, but regular equity investors as well.”
For now, the sharp rise in dogecoin confirms one of the strange but true facts of 2021: the most unconventional trades can sometimes generate disproportionate gains. Someone who invested $ 10,000 in dogecoin on Dec.31 would have raised more than $ 821,000 on Monday, according to Kraken data. The same money invested in shares of GameStop would have brought in just under $ 87,250, and in an index fund replicating the S&P 500, almost $ 11,150, including dividends.
If dogecoin were to reach $ 1, its value would overtake blue-chip companies including Advanced Micro Devices Inc.,
CVS Health Corp.
and General Motors Co.
“This is absurd,” said Billy Markus, the co-creator of dogecoin. “I haven’t seen anything like it. It’s one of those things that, once it starts going up, can keep going up.
Dogecoin is useless, and unlike bitcoin, it faces no limit on the number of coins that can exist. Every day, computers solve math puzzles to unlock new rooms. About 129.2 billion dogecoins were in circulation on Monday, according to CoinDesk.
Along with the rise of Dogecoin comes a broader rally in cryptocurrencies – and at a time when investor sentiment, even outside of cryptocurrencies, appears, by some measures, to be stretched. The so-called rally of everything in the financial markets this year has also pushed up prices on a range of things from “meme stocks” like GameStop to non-fungible tokens that verify the authenticity of artwork and highlights. sportsmen.
Cryptocurrencies tend to be particularly volatile, prone to double-digit percentage changes in a single day. The listing of exchange operator Coinbase Global Inc.
sent bitcoin and ether prices to record highs last week. Bitcoin fell more than 10% on Sunday on speculation that the Treasury Department was considering taking action against some institutions for money laundering using cryptocurrencies.
Stimulus checks and low borrowing costs that have driven stocks higher over the past year have likely helped dogecoin rise as well, Drach said.
“I don’t think you can sit still and make a ton of money with your S&P 500 [exchange-traded fund] then look at the people at the dogecoin and laugh, because it’s all the same cash pumping them up. he said.
Merchants said they started promoting “Doge Day” after seeing a new Twitter ad campaign from Conagra Brands. Inc. of
Slim Jim account. The snack brand, which frequently uses memes to gain attention online, said it plans to launch something called DogeSlimJim on Tuesday and urged the “DogeArmy” to spread the word. His tale was covered with memes of the dog Shiba Inu that inspired the creation of the dogecoin.
Lanie Friedman, spokesperson for Conagra, said the brand plans to launch a digital product inspired by the doges. She declined to provide further details and said that Slim Jim’s campaign was unrelated to the value of dogecoin.
Shaun Becker, who lives in Phoenix, started promoting “Doge Day” on his Twitter account after reading Slim Jim’s tweets. The 36-year-old risk and compliance analyst said he first bought dogecoin on February 8, as celebrities including Tesla chief executive Elon Musk and rapper Snoop Dogg, were promoting it. Mr Becker’s investment of $ 1,179.42 in dogecoin was worth $ 4,477 on Monday, when the dogecoin traded close to 39 cents.
“I’m very confident that on Tuesday it will probably hit at least $ 1,” Becker said in an interview. “Even if you donate $ 100, you can double your money. I don’t want anyone to make a risky investment. I just want everyone to have a piece of the pie.
Newcomers have crammed into dogecoin so much in the past week that investors in Robinhood Markets Inc.’s popular trading app have struggled to execute trades.
Robinhood said a surge in interest in the token last Thursday put “extreme pressure on crypto trading systems,” reducing its ordering system for cryptocurrencies. Trading returned to normal within two hours, the company said, but traders ran into trouble again on Friday, the day dogecoin hit an intraday high of 45 cents. This has led to sporadic crypto order failures and delayed notifications for some customers, the company said.
Robinhood, along with other popular retail platforms, have experienced blackouts and other technical issues throughout the past year amid increased investor demand. Robinhood was also criticized earlier this year when it halted and then limited customer buying for a handful of stocks, including GameStop, which had suddenly grown in popularity.
Between Thursday and Friday, Payward Inc.’s exchange, Kraken, recorded dogecoin volumes at 71 times their 30-day average.
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8