Dogecoin is among a number of financial assets that have exploded in popularity (and price) thanks to the once-in-a-generation serendipity of:
a) Millennials being stuck at home and bored;
b) Governments throwing stimulus cheques at young people;
c) New apps and platforms offering easy access to trade assets; and
d) Internet meme culture.
Gamestop, Reddit, Elon Musk, cryptocurrency, BrainChip, Bed Bath & Beyond. It’s all going To The Moon!
Meme-investing is less about fundamentals than it is about behavioural science.
In language that is alien to most veteran investors, the Millennial and Gen Z meme investing movement is a strange mix of detached irony, earnest – even forthright – belief in disrupting business models, and anti-establishment gusto.
Economist John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.”
Just ask Melvin Capital, which closed its short position in GameStop after its share price rose 2000 per cent. A year ago, GameStop shares traded at $US5.61 each. Today they change hands for $US164.37.
The 3400 per cent increase in the share price is because … I’m not sure why exactly.
I’m not even sure GameStop chief executive George Sherman knows, but on Tuesday he said he would leave the company by the end of the financial year in a move announced just days after Reddit user RoaringKitty, who goes by the real name of Keith Gill, doubled his stake in the company to $33 million.
In traditional financial markets, millions upon billions are spent analysing business models, meeting executive teams, designing power-point presentations, building Chinese walls, doing sell-side research, doing buy-side research, combing through profit and loss statements.
But meme-investing is less about fundamentals than it is about behavioural science.
Telsa this year surpassed Toyota to become the most valuable carmaker in the world. Toyota makes 2.13 million cars every quarter. General Motors sends 1.5 million cars off the factory line every three months. Last quarter, Tesla produced 91,000 cars.
The price-to-equity ratio of Tesla is more than 600 times, Toyota is just 9 times.
Will Tesla become a carmaker so dominant it puts Toyota out of business?
I’m not sure, but it appears enough investors – of any stripe – believe it will.
Concordia University professor Pierre-Yann Dolbec said Reddit-style investing may have transformed the practice forever.
“In the fashion, financial and music markets, hundreds of thousands of people are highly engaged and share their passion online, and can fuel significant transformations without necessarily wanting to do so,” he said.
In January, Future Fund chairman Peter Costello opined that day traders were making “unbelievable returns on companies that don’t make profits” and that there would be an inevitable correction, ending in tears.
The next day, I put $100 into dogecoin.
A link sent to me by a friend ensured that if I signed up to the online crypto platform Coinbase, we would both be gifted $10 worth of bitcoin.
Dumb fun or smart money?
Did I know what I was buying? Not really.
Did I hope that if I lost the whole $100 I could write it off as a tax loss as part of a research budget for my job? Yes.
What possible use is there for dogecoin? I’m not sure, but its inventors (software engineers Billy Markus and Jackson Palmer) wanted to create a coin that would appeal to a broader demographic than bitcoin, while also distancing the cryptocurrency from the controversial history of other units (the dark web, money laundering, drugs etc).
Can I imagine a future where dog lovers wish to use dogecoin to make payments? Sure, stranger things have happened.
In reality, it was like betting on elections or sport: a mix of not wanting to miss out on some dumb fun, and having a slight chance in the future to say: “I was right”.
And irrespective of any cross-over between the online world and reality, it seems Millennial irreverence is big business.
Digital currency exchange service Coinbase listed on the Nasdaq at $US76 billion this week. Share trading app Robinhood is expected to list on the market this year at a $US50 billion valuation. Payments group Afterpay is worth three times the value of Bank of Queensland and Bendigo and Adelaide Bank combined.
I bought dogecoin during a rally in January, where it had jumped from a negligible face value to about US8¢.
One week after I invested, my $100 was worth only $80. Steam had come out of the market.
But I held. Investing is a long-term pursuit, after all.
Around the start of April, dogecoin began to rally. At the time of writing it was changing hands at about 38¢.
The internet was awash with dogecoin fans attempting to push the cryptocurrency to a face value of US69¢ on April 20 (4/20, as the date would be written in North America, is celebrated annually as an unofficial holiday for marijuana smokers).
My $100 had mysteriously turned into $500.
Am I any wiser as to why? Not particularly.