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Names have been abbreviated for anonymity reasons.
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“I thought doge was funny because I grew up with the meme and decided ‘hey, maybe I'll throw some in there’,” explained SB, a university student bogged down by tuition payments.
Meme-powered trading frenzies are a highlight of 2021. Dogecoin is the second among a recent populist uptick in stock trading frenzies, where people like SB pile what little funds they have into an asset over a mixture of peer hype, Elon Musk tweets and “diamond hands” jokes.
Oh, did I forget to mention the deep underlying hatred of hedge funds and the ultrarich?
The implications of the new style of trading are quite revolutionary, despite the levels of absurdity and ridiculousness seen at face value. Beneath what seems like stupidity to anyone born before Generation Z is an increased criticism to a sector obsessed with wealth.
To understand how the climate was fostered, one must begin by stepping back almost 13 years.
Never before had there been a more blatant example of modern systemic corruption since the 2008 Housing Crisis. Tam Harbert, writing for the MIT Sloan School of Management, estimates the value of the Troubled Assets Relief Program (which provided most of the bailouts to large corporations) to be about $498 billion.
Loan lenders like Fannie Mae and Freddie Mac received approximately $311 billion, according to Harbert. Finding an exact total (which can be in the trillions depending on the source) for the bailouts is challenging and up for contention, which highlights a serious accountability issue that has plagued our financial system for decades.
But it wasn’t until the following recession that the fallout reached everyday people. Between December 2008 and December 2010, 1.8 million small businesses went under, and 8.7 million jobs were lost between December 2007 and December 2009.
Some interests were accommodated at the expense of everyone else.
With all of that context in mind, let’s fast forward back to today.
In January 2021, an unlikely sequence of events occurred that erupted into a conflict that pitted multi-billion dollar hedge funds against a massive group of angry people congregating on Reddit (considering its owners and the shortcomings of the platform, the whole event is ironic). Instead of a backlash after the events like Occupy Wall Street, populism reverberated through the actions of the investors in real-time.
However, they were fighting on enemy soil.
There was no water to be found anywhere, the only way forward was to fight fire with fire. Downloading Robinhood, touted as the investment platform for the masses, millions of ordinary people pooled what little cash they had into shares of Gamestop to maintain upward momentum and buying pressure.
At the height of trading, Robinhood halted trading on their platform, erasing momentum and angering many who lost money in the subsequent crash. It didn’t live up to its moniker of taking from the rich and giving to the poor, and CEO Vlad Tenev’s platform is now referred to as “robbin’ the hood.”
Many speculate that trading was halted because Robinhood is funded by Melvin Capital, a hedge fund that had billions of dollars in Gamestop short positions. Melvin Capital was bailed out by Citadel Capital, who is akin to Melvin’s dad.
A nonstop buying frenzy would have financially ruined them, but was artificially stopped.
Hearings were held shortly thereafter, after a backlash from both Democrats like Rep. Alexandria Ocasio-Cortez (D-NY) and Republicans including Sen. Ted Cruz (R-Texas). Maxine Waters (D-Calif.), chairwoman of the House Committee on Financial Services, plans to have two more before drafting any legislation to address the issue.
The SEC launched an “investigation” as well, if one could even call it that. Janet Yellen, Secretary of the Treasury, is leading the hearings. She also recently received $810,000 from Citadel Capital for a series of webinars.
(To be quite honest, if we take a second to look at our government's recent history regarding addressing financial corruption, I'd be more surprised if something came about from any of this)
An age-old conflict of interest had once again been unearthed.
“I ended up watching the entire hearing and slightly regretted my decision to buy through Robinhood,” said SB after realizing the aftermath of the event.
In late April 2021, these same people would pile into Dogecoin, which touts itself as joke money.
“I sold doge for about 40 cents,” said SB. “I sold around 700 shares that I got for 6 cents. As I didn't make very much, I unfortunately already used the money for my college tuition.”
Another student and small-time buyer, JP, mentioned that he “had to buy Litecoin and convert it to Dogecoin.”
“I think it was hard to do because it is a seven year old meme,” he said. He later regretted not buying more.
There exists new technology that is being developed that circumvents market manipulation and solves the problem of accountability, and Dogecoin is an example of it: cryptocurrency.
(And you all know about this already, though the real world implications of crypto are staggering)
With crypto (save for some exceptions), every transaction is recorded and stored on a blockchain, meaning that anyone can trace financial activity if they wish to do so. For example, if the 2008 bailouts were distributed on a blockchain network, there would be no guessing of how much was given out, as it would be completely transparent.
Legitimacy of each transaction on the blockchain can be proven by a sizable exertion of energy, commonly known as proof-of-work (POW) consensus. Proof is essentially an algorithmic alternative to a central bank, and this technology can be extended to other uses, such as a brokerage.
However, newer models of proof remove the need to use excessive amounts of natural resources.
A proof-of-stake (POS) model allows users to stake their existing coins to validators, one of many nodes that record transactions. The validators are financially incentivized to not misbehave, earning a flat interest for providing network proof and security.
New projects are being developed as alternatives to central monetary exchanges, all aiming to have low fees and energy usage. Many of these tout decentralized governance too, which means that no one entity can control the direction of the project.
“I was on the sidelines watching it,” mentioned JP. “I was like ‘dang, I could have gotten in on it’.”
Is it too late for the self described joke currency, or is it still early when considering the technological frontier that awaits?
There is one definitive aspect of these culminating events, however: if we can’t rely on our government to regulate institutions that have a lot of financial power, we may need to look elsewhere… to a paradigm that abandons institutions entirely.
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Sources below. As always, do your own research!
