Dogecoin crashes as Reddit-fuelled cryptocurrency 'joke' falls flat
The price of Dogecoin, a cryptocurrency that first started out as a joke, has crashed after a huge spike driven by users of the internet forum Reddit quickly unwound.
Dogecoin has fallen 38pc in the last 24 hours, trading at 2.7 cents (2p) per coin and is down 65pc from Friday's peak, reached as Reddit investors turned their attention to cryptocurrency.
Mimicking the stratospheric rise in the shares of American video games retailer GameStop driven by members of Reddit's WallStreetBets forum, Dogecoin had climbed 900pc on the back of the SatoshiStreetBets forum calling for the coin to hit $1. A tweet from Tesla founder Elon Musk, interpreted as in support of the cryptocurrency, added to the frenzy.
Cryptocurrency brokers struggled to cope with a surge in demand. Robinhood, an American stockbroker favoured by younger investors, said it had temporarily disabled instant deposits for cryptocurrency purchases, according to its website.
That followed the broker blocking users from buying GameStop shares on Thursday, a move met with fury from investors. The trading app allowed "limited buys" of the stock on Friday.
Reddit users' targeting of Dogecoin, a cryptocurrency named after an internet meme, appears to share little of the logic behind the GameStop buying frenzy, where an army of DIY investors sought punishment for hedge funds "shorting" or betting against the stock.
Will, a finance professional and active member of the WallStreetBets forum who wished to remain anonymous, said Dogecoin's joke status was behind its appeal to Reddit users.
"Dogecoin was made as an antidote to the very serious Bitcoin. New coins can be created which reduces its value in theory, unlike Bitcoin where supply is fixed, and they cost next to nothing compared with Bitcoin’s high price per coin, so it is not a very serious cryptocurrency. It is linked to an internet dog joke," he said.
He said jokes were central to the Reddit subculture and helped explain why members of the community had congregated around certain stocks.
"Having high conviction in one trade accompanied with a 'you only live once', or Yolo, attitude and then wearing the gains or losses as a badge of honour online is the part of the reason why seemingly random shares surged last week,” he said.
"The GameStop and Dogecoin story is about taking control of finances and having fun with it. The line is blurred between games and real life."
Will said "meme" investing was here to stay and investors needed to understand its importance if they wanted to make money from momentum stocks.
"If you see patterns early, you can make money. Joke stocks or cryptocurrencies doesn’t mean serious investors should not follow them. I check WallStreetBets every morning," he said.
