While there are many superficial similarities between the GameStop and Dogecoin online investment frenzies, Wall Street stocks and cryptocurrencies are valued using very different systems.
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.
The value of the Dogecoin (DOGE) cryptocurrency over the five days prior to January 29, 2021
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.
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.”
Is a Pump-and-Dump Scheme Afoot?
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.
“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.
Sourse: sputniknews.com
