ÖOver the past year and a half, movements in stock markets have generally made sense.
When the pandemic froze the U.S. economy last March, stocks plummeted across the board. This was intuitive: the economy was in a period of uncertainty; Cash and treasuries were a natural alternative; In addition, analysts had already warned of a withdrawal from COVID.
Then tech stocks rose in the spring, summer and fall, led by Amazon (AMZN), Zoom (ZM) and Netflix (NFLX). Again, there were well-founded explanations for this movement: Americans from home were increasingly shopping online, working online, and consuming online entertainment. Sure, valuations were sky high, but growing corporate revenues seemed to justify the momentum, if not the exact P / E ratio.
Even for the crazy runaways there were kernels of rational thinking: Tesla (TSLA) may have been grossly overrated, but its manufacturing capabilities are growing and the need to sell fossil fuels is becoming more important every day. Bitcoin’s staggering spike to over $ 60,000 seemed a little insane, but its inherent scarcity holds up value in the face of growing fiscal stimulus, deficit spending, and inflation expectations.
But in the past few months, the wild rides of some stocks and one cryptocurrency have defied all reasoning, suggesting that parts of the financial system are completely detached from reality.
Gamestop (GME) was apparently a warning. The struggling video retailer’s 1,900% surge in January (and the crash that followed) was fueled by a group of coordinated Reddit users. The frenzy sparked gains in other ailing, sharply shortened stocks – including AMC Entertainment (AMC), Blackberry (BB), and Bed Bath & Beyond (BBBY) – that had fallen victim to the pandemic or simply developed consumer trends. The volatile price movement was removed from the company analysis. Instead, it was driven by a shared desire to stick it down the road (institutional short sellers), have some fun, and make lots of money.
Dogecoin (DOGE) is different. The cryptocurrency was launched as a hoax in 2013 and has been anonymous for most of its existence, although popular cryptocurrencies like Bitcoin, Ether, and XRP have gained general and institutional recognition. The self-parodying cryptocurrency has soared over 10,000% since the start of the year, thanks to relentless advertising for business stars like Elon Musk and Mark Cuban.
In contrast to Bitcoin, there is no upper limit for the delivery of Dogecoins. As a result, the coin can inflate indefinitely, meaning its price inevitably crashes – if not soon, then eventually. Unlike popular alternative cryptos like Ether and XRP (which support decentralized networks and cross-border settlements, respectively), Dogecoin has no use or a broader purpose. In contrast to Gamestop, Dogecoin has no assets such as shop windows or goods or claims or the like. And unlike meme stocks, Dogecoin’s sentimental value (if any) has only been around for a few months.
In other words, Dogecoin’s $ 75 billion market cap (at the time of this writing) is among the most pointless and illogical sources of value creation in financial markets history. But precisely in its insignificance, Dogecoin tells us something important about the investor mentality, the digitization of our economy and today’s culture.
For one, millennials, now America’s largest generation (and thus the largest group of investors), came of age during the 2008 financial crisis. They watched millions of homeowners evicted through no fault of their own while senior bankers had no impact and short sellers like Michael Burry made millions. These formative experiences triggered a deep skepticism towards traditional financial companies. When you see the worldview that markets are fundamentally rigged, Dogecoin’s silliness feels a lot less silly.
Second, the fabric of the economy has changed in such a way that Dogecoin seems less absurd than it is. As I wrote two weeks ago, fintech is becoming more and more common. Online payments are the linchpin of today’s internet economy. and cryptocurrency is part of this new era. But only 14% of Americans today own cryptocurrency; Despite its longstanding dominance, Bitcoin could potentially lose ground to Dogecoin, or some other sign that is capturing the hearts and minds of the remaining 86% of Americans. The crypto counterfeiting of money is still in its infancy, even as fintech matures.
Third and finally, Dogecoin is a suitable avatar for the self-parody culture that is prevalent today in online areas from Twitter (TWTR) to Roblox (RBLX). The currency is based on a popular meme of a Shiba Inu dog and is an intentional misspelling of the word “dog”. Dogecoin is a wink, full of cultural references and somewhere between serious and dubious.
As a currency, Dogecoin also reflects today’s internet zeitgeist. It’s ridiculous, but so is the online world we live in.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.