The cryptocurrency Dogecoin is experiencing an unparalleled rise in value amid a push by online investors trying to rally purchases. In response, the trading app Robinhood halted instant deposits for crypto purchases; however, the comparisons with the GameStop affair end there.
Dogecoin was begun as a joke in 2013, based on then-popular internet memes about Shiba Inu dogs dubbed “doge.” However, the cryptocurrency amassed a sort of cult following over the years. On Wednesday, Dogecoin’s value began to rise quickly, climbing more than tenfold by Thursday night from $0.007 per coin to $0.78 per coin before declining again.
As CNBC reported, the explosion in value was driven by a subreddit called SatoshiStreetBets, named after Satoshi, the mythical founder of bitcoin. Bitcoin has also seen its value spike in recent days amid a flurry of buying.
The spike began amid another buying storm cooked up by amateur investors on a Reddit message board site; small-time investors on the WallStreetBets subreddit bought large numbers of GameStop and other stocks that Wall Street investors had taken out substantial short positions on, betting the stocks would soon decline in value. As brokerage firms and trading apps began moving to control the unexpected development, the influx of traders - some of them big ticket investors now - began branching out into other low-priced investments with the potential to rise, such as cryptocurrencies.
“Due to extraordinary market conditions, we’ve temporarily turned off Instant buying power for crypto,” a Robinhood spokesperson told CNBC on Friday. “Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers.”
The no-fee trading app on Thursday aroused widespread anger after a similar move targeting GameStop and several other stocks favored by investors communicating primarily on WallStreetBets. Some users brought a class-action lawsuit against the company, claiming that it is in violation of the terms of its own contract by restricting trading.
Billionaire industrialist Elon Musk played a part in fanning the flames of both increases, tweeting a doge meme on Thursday that called for even further attention to Dogecoin, which he described as his “fav cryptocurrency.”
The similarities between Dogecoin’s and GameStop’s situations end there. While GameStop’s value has continued to rise as short-sellers rush to patch up their impending losses, Dogecoin is not subject to that kind of pressure; its value is simply going up.
According to Brave New Coin, this cryptocurrency rise is a classic “pump and dump” scheme.
“The way an equity market pump and dump scheme works is that a small group of investors select and purchase shares in a company with a low market capitalization, thereby causing an initial jump in price,” the cryptocurrency news site notes.
“Next, call center operations – more commonly known as boiler rooms – call potential private investors with the aim of convincing them to purchase the stock by providing false information claiming the stock is about to experience substantial gains. Once enough investors have been misled into purchasing the stock and its price has risen by enough, the initial group of investors will sell their holdings to take profit, before the price collapses and all following investors make heavy losses,” it continues.
The site notes that the best indicator that a cryptocurrency is experiencing this is when “an unknown coin suddenly rises substantially without a real reason to do so.” The site notes that the US Commodity Futures Trading Commission offers substantial rewards for whistleblowing about pump-and-dump schemes.
Joshua Frank, co-founder and CEO of crypto research firm The Tie, told Cointelegraph on Friday that “Everyone universally agrees that no one is investing in ‘fundamentals’ of Dogecoin.” He noted that its rise and fall in value seems mostly tied to its popularity on social media “when the doge meme gets hot again.”