Illustration for article titled What is Dogecoin and Why Are People Buying It?Photo: Yuriko Nakao (Shutterstock)

Now that you got it under control the GameStop stock madnessIt’s time to learn about Dogecoin. Why is the private investor with a Shiba Inu dog pumping up the obscure cryptocurrency for a mascot? For the Lolz. With the help of Reddit and Elon Musk, Dogecoin has increased its value by 600% in the last 24 hours. As a trading movement, it makes far less sense than the GameStop madness – but that’s exactly what it’s about. Here’s a look at what’s going on.

Illustration for article titled What is Dogecoin and Why Are People Buying It?

Why Dogecoin?

Dogecoin, named after the Doge memeis similar to bitcoin. It is a Cryptocurrency This enables peer-to-peer transactions over a decentralized network. Cryptocurrencies are novel investments that are characterized by extreme volatility, which is why they also attract so many speculators. And the most recent speculative investment in Dogecoin was by the SatoshiStreetBets Reddit, TikTok and the tweets of Elon Musk having fun with the retail investor phenomenon.

According to Yahoo! FinancesA single three-word tweet from Elon Musk in December drove Dogecoin up 20%.

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How is this different from GameStop or AMC speculation?

The retail insanity over stocks like GameStop and AMC was originally linked to it Short sales. Wall Street traders have aggressively shorted out companies struggling to survive the pandemic and, in the case of GameStop, borrowed more shares than actually existed. This made them prone to a short press from individual investors organized on Reddit who bought stocks and drove up the price, Cost hedge funds billions.

It was an opportunity to stay on Wall Street and make some money on the side. As a trade, it actually makes sense, albeit risky, as it is hard to know when the grossly inflated stock price will peak and fall.

Illustration for article titled What is Dogecoin and Why Are People Buying It?

Dogecoin against it? Enthusiasts are simply pumping the currency up the heck, and many investors claim they would hold their positions until a $ 1 target set by Reddit is met (just under 5 cents currently). Unlike GameStop, there is no company to invest in and there are no short sellers to be exploited. In fact, there’s no particular reason Dogecoin would be worth buying, other than the fact that it’s basically Bitcoin, which is named after a meme.

“It is a mystery to me why Dogecoin is so valued,” says Adrian Lee, senior finance lecturer at the University of Technology in Sydney. in a story by CNET.

How about GameSpot or AMC speculation?

What seems to be a common denominator in all of these investment stories is that many small traders do it for laughs and with available money. Many of them are determined to hold on to their bets until they hit a high price target, such as a $ 1,000 price on GameStop (a far cry from the current $ 315 position). Redditors have admonished each other not to make withdrawals, and they have shown remarkable discipline not to do so, despite the risk that prices could drop at any moment.

While speculation can make money, it is difficult for retail investors not to interpret these bets as some kind of performance art – a non-utilitarian form of self-expression. According to CNBC, one of the first posts on SatoshiStreetBets was: “Let’s make DOGECOIN a thing. That’s it, that’s the post. “

So much foam

It’s not clear how the rise of individual investors will affect the stock market over the long term, or whether individual stock bubbles like these will appear more frequently (according to the SEC) keep an eye on the situationalthough not sure what they would or could do to regulate it).

Dogecoin speculations have all of the characteristics of one frothy marketThis is a definition where investors ignore market fundamentals in order to push the price of an asset above its target value. It seems too obvious to point out as so many traders don’t care about the basics and do it for a laugh. Serious investors late for the party, on the other hand, might not be involved in the joke.