When Dogecoin (CCC: DOGE-USD) enthusiasts started #DogeDay, many hoped Dogecoin prices would soar to $ 1. Even fifty cents would have been acceptable. Source: Shutterstock Instead, April 20th was one of the worst days Dogecoin has ever recorded. Within a few hours the coin had fallen from around 40 cents to 32 cents. By the end of the week, the “meme coin” had dropped below 20 cents, wiping out $ 25 billion in investors’ fortune. “There were concerns among larger investors who had large positions that the dog was going to have his day and want to get out,” said Eric Schiffer, the head of a private equity firm called The Patriarch Organization. like Dogecoin was dead. But Momentum Bulls would have the last laugh. When celebrities like Mark Cuban and Elon Musk started tweeting about the cryptocurrency, investors bought themselves back. The Dogecoin prices rose again almost magically. 10 of the Top Nasdaq Blue Chip Stocks to Buy Right Now As investors seek to understand an asset with zero intrinsic value, momentum investors will continue to confuse traditional stocks. As this week showed, Dogecoin may be dead – but not quite yet. Dogecoin Prices: The world’s biggest inside joke of the $ 40 billion prank cryptocurrency has long puzzled conventional investors. All coins already have an intrinsic value of zero, and Dogecoin made a point to mock that fact. The original code from 2013 issued up to a billion coins per solved block, making DOGE practically unusable as a form of currency. Fast forward to 2021, and DOGE has grown into one of the most serious money makers of the year. $ 10,000 invested in Dogecoin at the beginning of the year would have turned out to be over $ 870,000 at its peak. Ordinary retail investors became millionaires overnight. Dogecoin has also grown up technologically. The once ludicrous reward system for mining is now running on a system that mimics a 2.5% inflation rate. A “merged mining” capability also enables miners to process DOGE in parallel with Litecoin (CCC: LTE-USD), which significantly expands the mining pool. Dogecoin prices seem to have a life of their own, however. The major technological overhauls in 2014 coincided with a huge drop in value. Three years later, the opposite was the case; Although development practically stopped in the first quarter of 2017, Dogecoin prices would rise 3700% by the end of the year. The explanation for these moves varies from a failed Reddit investment scheme to a broader cryptocurrency craze. Lately, DOGE price movements have gotten even stranger. On January 28, Elon Musk, CEO of Tesla (NASDAQ: TSLA), tweeted the first of many posts referring to Dogecoin – a photoshopped issue of Dogue magazine with Cinza the Whippet on the cover. DOGE prices rose 500% the next day, causing a pattern of price increases after the new tweeter-in-chief mentioned it. Source: Thompson Reuters Dogecoin prices according to Elon Musk Tweet Other celebrities have since jumped on board. In February, billionaire Mark Cuban told Forbes that he had bought Dogecoin for his son. “It’s fun, it’s exciting and educational for him,” said the Cuban during the interview. “It gives you a better chance of winning than a lottery ticket.” That educational lesson could have made billions for investors. By mid-April, Dogecoin prices rose so high that XRP (CCC: XRP-USD) was temporarily replaced as the fourth largest currency in the world. The Driving Forces Of Dogecoin When cryptocurrencies hit the market in the early 2010s, Bitcoin (CCC: BTC-USD) dominated. Creating new wallets was a cumbersome process, and few investors ventured beyond what they already knew. As such, Bitcoin had a market dominance of at least 95% through 2016. However, as high quality exchanges emerged, Bitcoin’s early lead became less critical. Newer exchanges have allowed customers to purchase dozens of different coins without creating a new wallet for each currency. The technological barriers to new altcoins began to crumble. In his place, the power of celebrity began to take over. Coins like Cardano (CCC: ADA-USD), Polkadot (CCC: DOT-USD) and Stellar (CCC: XLM-USD) soon climbed into the crypto ranks thanks to their all-star development teams. In some cases, the technology didn’t even seem to matter. In March, Tron CEO Justin Sun (CCC: TRON-USD) hit the headlines after losing a high-profile $ 69 million auction for the most expensive non-fungible token (NFT) artwork to date. The currency of the well-known “hype man of the century” would almost quadruple by mid-April despite Tron’s serious plagiarism problems (Sun would continue to attribute this to poor “translation”). Today, the same celebrities are driving Dogecoin prices soaring. It doesn’t seem to matter that Dogecoin has virtually no development team or that its technology is virtually identical to Litecoin. As more and more well-known names jump on board, the price of the cryptocurrency only seems to be going in one direction: up. Momentum Becomes a Driving Force Dogecoin’s “celebrity effect” also coincided with a wider shift towards momentum investing – a by-product of social media’s role in promoting cryptocurrencies. Many coins now have special fan bases that inadvertently create feedback loops in the price of a coin. Rising prices attract more social media interest, which leads to more buyers joining, and so on. The results were breathtaking. An investor who bought one of the top 10 coins on Twitter in mid-2020 could have tripled Bitcoin’s return on their investment. (Only one of these normally risky initial coin offerings, or ICOs, would fall off its original price.) The surge in momentum investing has even surprised several veteran crypto investors. In May 2020, Californian company Cryptolab Capital closed its doors after a series of poor Bitcoin returns. Firms like Virgil Capital would resort to fraud to maintain the illusion of success. Momentum is a double-edged sword, however. The same “hot money” investors often sell first, creating a relentless downward spiral. Because of this, investors were concerned about the 50% decline in Dogecoin over the past week. Without intervention, the coin would certainly keep falling. Elon Musk to the Rescue Fortunately for Dogecoin owners, however, funders had other plans. When Elon Musk and other celebrities used social media for support, DOGE prices began to rise. When Musk tweeted “The Dogefather” at 2:20 am on April 28th, prices would hit 32 cents the next morning. For Dogecoin, these restores are important. Most late-game cryptocurrency investors are “buyers looking to make money,” notes Richard Partington, business correspondent for The Guardian. Falling prices tend to lead to more sales. Trading volume makes the case. DOGE’s initial spike to 40 cents coincided with a spate of purchases. When prices fell, volumes stayed high. In other words, investors sold out faster than new buyers. Chartists often frustrate fundamental stock pickers with terms such as “breakouts” to describe initial price gains that lead to further increases (or vice versa, downwards). In the case of Dogecoin, they have a point – a little nudge from a well-timed tweet can act as a catalyst to send DOGE to the moon. So invest thoughtfully with Dogecoin. Investors are no longer in control of the missile ship. It is the famous supporters who support the currency of this strange new world. At the time of this writing, Tom Yeung held positions (neither directly nor indirectly) in the securities identified in this article. Tom Yeung, CFA, is a Registered Investment Advisor committed to making the world of investing easier. 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