Since its creation, the value of Dogecoin has increased by 1,923 times. The founder of Tesla has sent out Twitter assists all the way, from obscurity to popularity of the currency circle — what is the holiness of Dogecoin?
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On December 6, 2013, Dogecoin was born. According to its founders, it was created to poke fun at the crazy digital currency market. Since then, the online community of Dogecoin using Scrypt algorithm has developed smoothly. Due to its fast transaction and convenient payment, Dogecoin has started its wild growth journey from “minority play”.
How savage is it? By early May, Dogecoin was worth $85.3 billion. What is this concept? When issued, a single 0.00026 dollars, now a single 0.5 dollars, a cumulative increase of 1,923 times.
The rise of Dogecoin has been aided by one man — Tesla founder Elon Musk. Every time Musk tweets about the value of Dogecoin on social media, its value is bound to rise and fall.
Dogecoin and Musk (photo credit: Network)
In January, when Musk spoke out, Dogecoin rose 800% in 24 hours to $0.07 a coin. In February, Musk sent the Dogecoin climbing to $0.08 a coin with a tweet. On April 16, Musk released a “dog barking at the moon” chart, which saw Dogecoin rise more than 200% in one day and then quintuple in the next five days. As of the afternoon of May 4, Washington time, Dogecoin has stood on the high of 0.5 US dollars per coin. That’s a 200-fold increase in just one year!
As the price of Dogecoin continues to rise, Musk continues to stretch his personal credit. The popularity of Dogecoin obviously depends on the endorsement of a few celebrities such as Musk. It has long been no longer a “decentralized” minority payment currency, but an “air coin” full of idol worship and lacking actual value.
Investors certainly expect Musk to continue to support Dogecoin, but think about it. How can Musk keep Dogecoin afloat on his own?
On May 8, Musk appeared on The Saturday Night Show and when pressed by the host, he gushed, “Dogecoin is a scam.” The announcement sent Dogecoin down 34%, as well as its Cousins like Bitcoin and Ethereum.
This shows that when the concept of investment goods deviates from the value attribution, the run crisis is already on the way. If investors realize that the speculative value of Dogecoin is much higher than the actual value, selling and stampede will be a large probability event. Empty fire exuberant speculative market, always become a bubble.
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Then beautiful foam, only a flash. It is only right that financial markets return to the essence of financial transactions.
The essence of finance is the exchange of value across time. In the traditional stock market, for example, people buy stocks to buy the performance of companies. The company is in good operating condition and the shareholders may receive dividends; The company loses money and the shareholders bear the loss. During the period of ownership, investors continue to focus on the company’s growth potential, operating income expectations, productivity conditions. Do you see that? Only in the cross-time value exchange, the company stock will reveal its intrinsic value attribution.
The stock market is afraid of bubbles. Trading protections are in place to remind investors of the risks involved and the need for caution. Cryptocurrency markets, on the other hand, trade around the clock, in all time zones around the world, and have a high information gap that allows multinational investors to “trade blindfolded” amid information asymmetry. What would go along with it? Speculation, speculation, rapid swings between losses and profits, can the bubble be far behind?
If the frenzy is to emerge, it must be managed early. Chinese regulators have stepped in to “cool down” the cryptocurrency market ahead of the growing speculation on Dogecoin.
Dogecoin (photo: Network)
In 2017, the central bank and seven ministries issued a notice that “ICOs are illegal public financing activities and should be stopped immediately”. What is an ICO? It is an Initial Coin Offering, essentially a financial scam that induces investors to raise a large amount of capital early and attracts investors in the secondary market, resulting in many investors losing all their money.
Major financial institutions are also making moves. Recently, China Citic Bank issued a notice banning bitcoin transactions using its accounts. Earlier, 13 banks, including Industry, Agriculture, China, Construction and Communications, had blocked transactions with Bitcoin, Litecoin and other virtual digital currencies.
Why are regulators and financial institutions so determined?
First, many cryptocurrencies have been used for cross-border circulation of illegal funds and ash transactions, which has increased the pressure and difficulty of regulators in anti-money laundering, anti-terrorism and anti-tax evasion.
In 2019, Hangzhou police detected a gang that used virtual currency to provide fund payment channels and settlement services for cross-border gambling and telecom network fraud. The amount involved was up to 50 billion dollars, and 10 billion dollars of black gold was “laundered” every month, which encouraged the arrogance of cross-border gambling and new crimes in telecom network and other upstream black and ash industries.
Second, to protect the rights and interests of investors. In November 2020, the second trial of plustoken, the biggest case in the currency industry, was pronounced, involving more than 40 billion dollars and tens of thousands of victims. Human nature is greedy, dream once rich people everywhere. Without hard limits from a regulatory perspective, those who fall into the trap of speculation will only keep coming.
Third, the boom in cryptocurrencies carries huge financial risks. In the cryptocurrency market, USD needs to be exchanged for stablecoin, resulting in a decrease in the domestic broad money supply M2, leading to a shift from real money to virtual money, and a large amount of funds cannot flow to the real economy. All countries encourage financial innovation and development, but only by facilitating the development of the real economy and optimizing the relationship between productivity. Apparently, the Ponzi scheme of virtual innovation disguised as financial innovation does not count.
Take a trip down memory lane. “I can calculate the course of the heavenly bodies, but not the madness of men,” exclaimed Newton, who had lost so much money in the tulip mania.
Investment and speculation, although a word, but there is a world of difference. The lesson of the past is still in my ears.
By Tang Ling, contributing writer of China Economic Weekly and Deputy Director General of Blockchain Finance Research Center, School of Economics and Management, Tsinghua University
Edit/Cloud Song
Source: Xiakdao wechat public account
