In its most recent report on the state of the network, CoinMetrics singles out Dogecoin (DOGE) as the most user-driven cryptocurrency on social media. At first glance, it can be seen as the asset of the blockchain ecosystem that most closely resembles the case of GameStop, whose shares rose, encouraged by an army of retail investors grouped in the Reddit WallStreetBets forum. However, analyzing in depth, it will be clear that they are not similar.
For CoinMetrics analysts, DOGE is the best example of ‘a powerful combination of hype fueled by social media and the endorsement of millionaires ». Its price rises promoted by groups on Twitter, TikTok, Discord, Telegram and Reddit. In fact, the cryptocurrency’s value rose more than 500% when it climbed to $ 0.085 on January 29, breaking its previous all-time high of $ 0.017.
The factors behind the so-called memecoin price boom were various, but all stemmed from the frenzy started by Reddit users grouped together on WallStreetBets. CoinMetrics confirms this when it points out that, despite the huge rise in the price of the cryptocurrency, the addresses active at that time, did not even reach a new all-time high. “This suggests that most new buyers kept their funds on centralized platforms like Robinhood rather than buying DOGE and keeping it at their own addresses,” the report read.
The number of active Dogecoin addresses reached its all-time high in July 2020, coinciding with the spread of a viral TikTok challenge that catapulted the price of the cryptocurrency. At that time, the formula used in the social network resembled an unethical practice known as Pump and Dump (pump and discard). It is a market manipulation scheme by an investor or group of them who try to increase the price of an asset they own and then sell it en masse. They achieve this through recommendations based on false, misleading or highly exaggerated statements, as described in the CryptoNews glossary of terms.
“Dogecoin has become the target of many Pumps and Dumps,” says Anthony Sassano, creator of The Daily Gwei YouTube channel. He adds that, attracted by the charm of the meme and the ingenuity of many, cryptocurrency tends to attract people with little knowledge, “Who believe they are buying cheap because they do not know what a market capitalization is.” The truth is that DOGE has no value to support it, he explains.
These movements of pumping up cryptocurrency prices create artificial lawsuits and illegitimate actions, very different from the organic or genuine movements that drive the price of bitcoin, as determined by a study conducted in 2019 on Pumps and Dumps in the cryptocurrency market. He points out that these movements are mainly distinguished by raising the price of a certain asset for very short periods, which occur just after a rumor, false news, or action is promoted.
Through social media, an artificial growth operation of the Dogecoin price is introduced. Unlike the more genuine growth of bitcoin, in which market not only the price grows, but also «their number of transactions and active addresses has a linear growth trend, therefore called the star coins ”, explains the document.
Data from CoinMetrics reveals that the social media movement that spiked the price of DOGE did not leave a significant number of new users of the cryptocurrency. Source: CoinMetrics.
In its 88 report, CoinMetrics also provides up-to-date data on active bitcoin addresses which averaged over 1.1 million last week, hovering around the all-time highs. For its part, the Ethereum network now averages more than 1.2 million transactions per day, which is around the previous all-time highs established during the January 2018 peak. These data reveal that growth on these networks is organic.
Dogecoin similar to GameStop?
Although Dogecoin and GameStop shares have risen with movements from social media, these have come from different approaches. While, on the one hand, the price of the cryptocurrency usually moves with market manipulation strategies such as Pump and Dump; the case of the video game chain has to do precisely with a rebellion of thousands of small investors who grouped in the subreddit r / wallstreetbets decided to go against the management and rules imposed on Wall Street.
Pump and Dump strategies that drive the price of an asset through social networks are implemented by scammers who seek to manipulate the market in order to obtain significant profits. It happens when they sell everything they have bought before promoting a specific cryptoasset, offering its coins precisely to those who will end up harmed when its value plummets. However, it is not a welcome strategy on the r / WallStreetBets forum as made clear in a post published last month.
As CriptoNoticias previously reported, the movement around GameStop was not something that took place overnight, but began to take shape in August 2019. A post by the user Jeffamason entitled: “The real great short circuit of the century”, it is a kind of declaration of war on the formulas that Wall Street usually uses.
In his description, Jeffamason explains the reasons that led him to think that hedge funds and other market makers manipulate the system in their favor. At that time, he proposed a scheme to join forces with the idea of outdoing these market manipulators who use their enormous sums of capital, as well as the media and other tools, to balance operations in their favor.