Over the last year and a half, movements in equity markets have generally made sense.
When the pandemic froze the U.S. economy in place last March, stocks crashed across the board. This was intuitive: the economy was entering a period of uncertainty; cash and treasuries were a natural alternative; plus, analysts had been warning of a pull back even before COVID.
Then, technology stocks soared in the spring, summer and fall, led by the likes of Amazon (AMZN), Zoom (ZM) and Netflix (NFLX). Again, there were sound explanations behind this movement: homebound Americans were increasingly shopping online, working online, and consuming entertainment online. Sure, valuations were sky high, but the companies’ growing revenues seemed to justify the momentum, if not the exact P/E ratios.
Even for the zany outliers, there were kernels of rational thinking: Tesla (TSLA) may have become wildly overvalued, but its productive capacities are growing and the imperative of weaning off fossil fuels is more essential by the day. Bitcoin’s stunning surge to over $60,000 seemed a little wacky, but its inherent scarcity holds value amid growing fiscal stimulus, deficit spending, and inflationary expectations.
But in the last few months, the wild rides of a few stocks and one cryptocurrency have defied all logical thinking, suggesting that parts of the financial system have become completely untethered from reality.
Gamestop (GME), it seems, was a warning. The struggling video retailer’s 1,900% rise in January (and subsequent crash) was fueled by a group of coordinated Reddit users. The frenzy sparked gains in other battered, highly-shorted stocks — including AMC Entertainment (AMC), Blackberry (BB), and Bed Bath & Beyond (BBBY) — which had fallen victim to the pandemic, or simply evolving consumer trends. The volatile price action was untied from company analysis. Instead, it was driven by a common desire to stick it to the man (institutional short sellers), have a little fun, and make a lot of money.
Dogecoin (DOGE) is different. The cryptocurrency was created as a joke in 2013 and languished in anonymity for most of its existence, even while popular cryptocurrencies like Bitcoin, Ether, and XRP gained mainstream and institutional recognition. The self-parodying cryptocurrency has skyrocketed by over 10,000% year to date, fueled by the relentless promotion of business celebrities like Elon Musk and Mark Cuban.
Unlike Bitcoin, there is no cap to the supply of Dogecoins. As a result, the coin can inflate infinitely, which means its price will inevitably crash — if not soon, then eventually. Unlike popular alternative cryptos like Ether and XRP (which underpin decentralized networks and cross-border settlements, respectively), Dogecoin has no utility or broader purpose. Unlike Gamestop, Dogecoin is devoid of any assets, like storefronts or wares or accounts receivable or anything. And unlike meme stocks, Dogecoin’s sentimental value (if it has any) has only existed for a few months.
In other words, Dogecoin’s $75 billion market capitalization (at the time of this writing) is among the most senseless, illogical sources of value creation in the history of financial markets. But precisely in its meaninglessness, Dogecoin tells us something important about investor mentalities, the digitization of our economy, and today’s culture.
For one, millennials, now America’s largest generation (and thus largest group of investors), came of age during the 2008 financial crisis. They watched as millions of homeowners were evicted through no fault of their own, while senior bank executives faced zero repercussions and short sellers like Michael Burry made millions. These formative experiences instilled a deep skepticism of traditional financial companies. When one’s worldview is that markets are fundamentally rigged, Dogecoin’s silliness feels a lot less silly.
Second, the fabric of the economy has changed in ways that make Dogecoin seem less absurd than it is. As I wrote two weeks ago, fintech is increasingly everywhere; online payments are the linchpin of today’s Internet economy; and cryptocurrency is part of this new era. But only 14% of Americans own cryptocurrency today; despite its longstanding dominance, Bitcoin could, conceivably, lose ground to Dogecoin or any other token that captures the hearts and minds of the remaining 86% of Americans. The crypto-ification of money is still in its infancy, even as fintech matures.
Third and finally, Dogecoin is a suitable avatar for the self-parodying culture that predominates today in online spaces, from Twitter (TWTR) to Roblox (RBLX). The currency is based on a popular meme of a shiba inu dog, and is a deliberate misspelling of the word “dog.” Dogecoin is tongue-in-cheek, laden with cultural references, and somewhere between serious and unserious.
As a currency then, Dogecoin is also a reflection of today’s internet zeitgeist. It is ridiculous, but so is the online world we live in.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.