It has been an extremely fun month for both the cryptocurrency and the stock market, which saw the astronomical rise of Dogecoin (DOGE), XRP (XRP), and GameStop (GME). Over the past few weeks, traders witnessed eye-popping rallies that helped someone to make a pile of money, while others got "FOMO'd and rekt." And after the dust has settled a bit, we decided to analyze the main factors behind all those spikes, namely the social media and the influencers that seem to have an overwhelming impact on the markets.
Memes have long become an indispensable part of Internet culture, a perfect tool for conveying a message in a hilarious way. But as it turns out, memes can not only make someone crack up after reading a witty punchline but also make him or her a boatload of money.
In 2020/2021, Dogecoin (DOGE) became one of the most pumped altcoins on the market, the value of which has risen by the mind-blowing 2054% at the time of writing. The price of the coin under review was up by an additional 85% at the peak of the recent mega-rally that turned DOGE into the hottest buzzword across all financial media. The hype created around the meme coin has even overshadowed the mighty Bitcoin, which, by the way, has just breached the ultra-important price level at $50,000 that is likely to become an axis for the price action throughout the current year, unless BTC moves all the way to $100,000. What's so special about DOGE? Nothing...but fun
But it was DOGE that stole the show and became the most expensive meme of all time. Just a quick reminder that Dogecoin emerged in 2013 as a fork of Litecoin (LTC). Conceptually, it is a coin that represents a not overly sophisticated crypto-payments solution that was made into a core component of a tipping system on such popular social media outlets as Twitter and Reddit. The Dogecoin's logo depicts Shiba Inu, a dog of Japanese breed, that was a popular meme some years ago. The meme consists of the image of the dog surrounded by phrases in broken English, such as "Much morning" and "So scare."
The founders, Billy Markus and Jason Palmer, were upfront and honest about the absence of any intentions to make DOGE into something big and important. They were okay with its status as a fun currency that serves the needs of a growing community of social media users. So much so that they have literally abandoned the project at a certain point. The Dogecoin ecosystem hadn't undergone any upgrades or maintenance whatsoever in nearly two years as the leading developer Ross Nicoll hasn't done any amendments to the open-source protocol since June 2019. But after witnessing this bullish frenzy, the team has resurfaced and got back to work, with the promise to bring the system up-to-date in order to keep DOGE fundamentally sound.
And as if to stay in line with the whole "silly joke" thing, Billy Markus revealed that he had sold all DOGE holding in 2015, even before the crypto bubble of 2017/2018 began to inflate, for the sum equivalent to the price of used Honda Civic, which is less than $10,000, we suppose.
This ironic story does bear some similarity with that of Laszlo Hanyecz and his purchase of pizzas for 10,000 BTC that would now be worth half a billion. But the difference between the two stories lies in the fact that Markus had actually quit the project because of continuous harassment coming from community members who had a different vision of the project's development, and also due to the financial scrutiny he had been experiencing at the time.
So, how did it happen that the cryptocurrency that wasn't taken seriously even by its founders had ballooned to the market capitalization of $10 billion and briefly found itself among the top 10 cryptocurrencies? Truth be told, Dogecoin is the prime example of how a sub-par product could get extremely overvalued if endorsed by a globally recognized person, which in the case of DOGE happens to be Elon Musk, the richest man on the planet with a net worth of around $190 billion. His Twitter activity is being followed by 44.7 million people, an audience big enough to move any financial market when persuaded.
Upon analyzing Musk's Twitter history, we found six instances of him mentioning a cryptocurrency: four out of six posts were related to Dogecoin, and two mentioned Bitcoin. The first one dates back to July 2020, when the tech visionary tweeted: "Excuse me, I only sell Doge!" and attached the meme of the DOGE cloud running over the contemporary financial system. The initial post was most likely the reaction to the first considerable price pump that had been initiated by TikTok users that got the name the Dogecoin TikTok Challenge.
The scheme was quite simple: the user nicknamed @jamezg97 posted a video where he was actively shilling for DOGE, urging people to devote as little as $25 to a shamelessly cheap cryptocurrency and then scoop up around ten grand once the price reaches $1. That video got over 800,000 views and catalyzed the first pump that catapulted the price up by 95% in a matter of hours and caught Musk's attention.
And while it was nothing but a blunt pump scheme, it wasn't without solid logic. Dogecoin indeed possesses three main traits necessary to become attractive for the unsophisticated retail investors, a lot of whom haven't even reached the legal drinking age. At that time, DOGE was super cheap, trading at around $0.002 per coin. It had good recognizability due to being placed relatively high in global ranks - at that time, DOGE was somewhere near the 20th place. It also had a decent but not overly large market capitalization of $150 million, enough to ensure a swift bullish reaction of the market to the influx of pumpers and those who entered the market being affected by the FOMO. Lastly, Dogecoin has a simplistic concept behind it that is appealing to the younger audience that doesn't want to get into the nuts and bolts of tech-based cryptocurrencies and prefer the understandable meme-coin. Who wouldn't want to see the crypto with a cute mug on it going to the Moon, right?
The TikTok Challenge didn't achieve its goal of pushing DOGE up to $1, though it created a clear precedent that a simple call to action from a social media influencer might impact the market in a significant way, ultimately creating a digital gold rush that spread out across both cryptocurrency and stock markets.
However, the 95% pump turned out to be an appetizer before the main dish that was served on January 28 when DOGE began its meteoric rise. On that day, the price had shot up by 400% and attracted a huge wave of retail traders who got caught up in the FOMO.
1-day DOGE/USDT chart. Source: Tradingview
This enormous influx of profiteers resulted in the continuation of the ferocious pump that resulted in the price adding another 180% in 24 hours, ultimately bringing DOGE to the new all-time high at $0.087. On that very same day, Elon Musk posted a meme that depicted a cover of a glossy magazine named Dogue, a pick at a fashion magazine Vogue, but with a picture of a dog instead of a fashion model, obviously hinting at the "fun coin." The next day, he threw more fuel into the fire by adding #bitcoin to his Twitter bio. Later, he explained this decision via another tweet that said, "In retrospect, it was inevitable," probably meaning that he couldn't have resisted the power of BTC (and DOGE).
Market stats after the Twitter bio change
Within three hours after Elon made amendments to his Twitter bio, the price of Bitcoin catapulted from $32,000 to $38,000, a move that constituted a 15% price increase in such a short period of time in the market that already had the capitalization of around $1 trillion.
1-hour BTC/USDT chart
One might argue that there should have been some other underlying factors, more significant than a tweet by the business magnate, that sparked the rally, which revitalized the market that had been slowly falling into stagnation. Perhaps there were some other market-moving factors, hidden beneath the piles of spoof orders, or occurring at the OTC trading desks - there is no way of telling now. But there have been a number of studies regarding the impact that those couple of tweets, in particular, have exerted on both Bitcoin and Dogecoin markets.
The most notable of them belong to Blockchain Research Lab that had closely monitored the reaction of the cryptocurrency market to Musk's posts and calculated the short-term returns and trading volumes that occurred shortly after the tweet became public. They noticed that just half an hour before Musk made the tweet about Dogecoin, the trading volume in the DOGE/USDT market amounted to a mere 9 trades or $1,942 worth of currencies exchanging hands per minute. Amazingly enough, both these metrics skyrocketed in the first thirty minutes after the post was made: the trading volume shot up to $299,330/minute, with 775 trades executed over the said period of time.
The researchers also noticed significant changes in trading volume forty-five minutes before and after the mentioned tweet that said, "I only sell Doge," which means it came as Musk's reaction to the DOGE pump instigated by the TikTok users, and this reaction added more puff to the rally. All in all, Blockchain Research Lab estimated that the cumulative abnormal return that occurred in the Bitcoin market as the result of Musk's social media activity amounted to 19% in just six hours after posting #bitcoin, while the same metric but with regard to the Dogecoin market showed the abnormal return of 17.3% in an hour after he tweeted: "One word, Doge." There has also been a visible increase in the cumulative abnormal trading volume on five occasions out of six in both markets, though the reaction of the DOGE market was much more intense since the trading volume there ballooned by around 600% each time the meme coin was mentioned.
It remains to be seen whether this incredible pump of Dogecoin would force the revival of the entire project and the further entrenchment of DOGE among top-ranked altcoins or would it all end up with the classic dump that would leave the coin drained and forgotten until Musk decides to do some Twitter trolling again. Upon retesting the level at $0.085 twice, the price of DOGE went into steep correction and lost 45% of its peak value to the mounting selling pressure, whereas the rest of the altcoin market was flashing green all around. Dogecoin might find support at $0.04, the level that served as resistance during the pullback after the initial pump, but the possibility of collapsing to $0.015 also remains high.
Whatever happens to the meme coin next, it has become clear that we are witnessing the emergence of a new variation of news trading that can be called "social media trading," a phenomenon that requires further study because we see the evolution of horde mentality in financial markets and the emergence of behavioral patterns that are formed under the influence of the widely recognized Internet personality, even if half of his messages are of a weirdly humorous nature sometimes.
There's probably no reason to blame Musk for being a powerful influencer - he is free to post whatever he wants as long as it doesn't involve the siege of Capitol, but it's a bit frustrating to see people being so eager to have "fun" in the cryptocurrency market and pumping joke coins while the truly deserving blockchain projects and currencies remain unnoticed and hugely underappreciated. But then again, the market doesn't care about justice and someone being more fundamentally worthy than the other - at the end of the day, it's all about the balance of supply and demand. And since Dogecoin has an infinite supply of coins and the richest man working as its PR manager, we are likely to see more Twitter-fueled pumps in the future, so having a couple of hundred dollars worth of DOGE in the portfolio might be a good idea - just wait for the market to make a transition from the correction phase to consolidation before buying this cute and very explosive cryptocurrency.
XRP is another altcoin that "fell victim" to the coordinated buying activity that had been initiated on social media. The data derived from Google Trends shows the continuous rise of interest towards XRP that began at the end of last year, right around the time when the airdrop of 46 billion Flare (FLR) tokens to all XRP holders was announced.
XRP search rate chart. Source: Google Trends
The interest kept rising in a wave-like motion on the backdrop of the SEC lawsuit that shell shocked the entire market at first and sent XRP into a cascading correction that took the price down from $0.78 to $0.2 in a couple of weeks. Since that time, the news outlets and social media have been saturated with details about the ongoing standoff between the SEC and Ripple Labs. The blockchain company responded to the regulator's accusations of defrauding retail investors by posing XRP as security while it wasn't recognized as such by the US authorities - Ripple Labs filed an official letter, stating that the charges against the company were based on an "unprecedented and ill-convincing legal theory" that has no proper authorization and goes against the existing legal framework and the previous decisions of other regulatory agencies. The thing is that in 2015, the Financial Crimes Enforcement Network (FinCEN) had actually awarded XRP the status of digital currency, hence given the permission for the distribution of tokens among retail investors. It appears that people at the SEC were aware of FinCEN's verdict but decided to ignore it and file the lawsuit anyway.
Interestingly enough, the filing of the letter from Ripple Labs was accompanied by a very active response from news outlets and social media led to the 50% appreciation of XRP's value within a single day of trading.
1-day XRP/USDT chart
Another interesting fact is that the number of active addresses in the Ripple network had increased two-fold in that short period of time, having gone from 10,000 to 20,000 addresses, ultimately sending the demand for XRP, and its price, to the stratosphere. In fact, right around that time, Santiment, the well-known crypto firm that deals with on-chain data analysis, pointed out that the interest in the controversial altcoin from the users of social media platforms, mostly Twitter and Reddit, was at its highest point since September 2018, when XRP had also surged tremendously within a single day from $0.32 to $0.77.
XRP social volume chart. Source: Santiment
But while Twitter users had been actively spreading the news about Ripple Labs countering the blow from the regulator by filing a Freedom of Information Act request, and drawing the attention to XRP, the biggest role in a huge 170% spike must be attributed to SatoshiStreetBets, the subreddit, which is a name for a forum on a popular social platform Reddit, that is a part of a much larger online gathering called WallStreetBets.
In case you didn't know, the members of this forum were responsible for the whole frenzy around GameStop (GME), RobinHood, and large hedge funds, an amazing story that has been covered extensively by all experts and media outlets, so we won't be delving into it much further, expect for reminding that a crowd of Reddit users decided to "punish" large hedge funds by going long on the GameStop stock after noticing that large firms like Melvin Capital had extremely large short positions on GME to the extent that 113% of GameStop's outstanding shares were shorted. The focused action on the part of WallStreetBets resulted in a humongous liquidation of shorts and caused hedge funds to record around $20 billion in losses, while the price of the stock had driven up from $20 to $340.
Actually, SatoshiStreetBets, which is branded as the "crypto version of WallStreetBets" was established back in February 2020, when the cryptocurrency market was in a state of a jolly rally, being unsuspecting of the pandemic that will knock it down to the ground. The main purpose of this group was to bring together retail cryptocurrency traders who would boast about their trading performance (or complain about the losses), shill for some promising coins, and, of course, share tons of crypto-related memes, some of which are indeed super hilarious and to the point.
After months of hibernation, this geeks-only forum came to life when Robinhood, an American broker that made a name for itself by providing for the commission-free trading on the stock market that can be carried out via the proprietary mobile application, had suspended the buy option for a number of stocks that had been undergoing a coordinated pump by Redditors from WallStreetBets, consequently halting the parabolic rally that left the powerhouses of the financial world gobsmacked. After Robinhood had cut off the army of retail traders from buying GME, the Reddit gang decided to shift its attention to the cryptocurrency market and relocated to the corresponding forum, from which they began to organize the pumps of both XRP and DOGE.
Apparently, XRP has been chosen for being severely undervalued from the SEC lawsuit and perhaps because of its status as a victim of the "system" against which the Redditors had rebelled. The similarity in the style and intensity of all these pumps were so evident that even David Schwartz, the CTO of Ripple Labs, made a tweet that depicted the same parabolic rise of these assets. "Coincidence?" he wrote then, which was obviously a sarcastic remark. Luke Martin, the head of Venture Coinist, noticed that the 'hot ball of money" that traveled from GameStop to Dogecoin was then thrown into the XRP market.
However, Reddit and Twitter weren't the only social platforms responsible for the XRP's cannonball-like flight to the upside. As you probably know, Telegram is another popular place on the Internet that gave rise to a plethora of crypto-related groups and communities.
Few of these groups have played a massive role in the latest XRP pump. In fact, it all started off with a group called "Buy and Hold XRP" that was registered a few months prior to the event. The group had miraculously aggregated over 200,000 members(the Telegram's user cap), which forced it to bifurcate into several other groups that pushed the same agenda, which was to carry out a coordinated pump of XRP on the 1st of February.
The hype around the brewing pump was so loud that the group(s) saw thousands of new members signing up every single day before the said date. So much so that it caused a premature rally of 40% on the day that the call to action began circulating around the Internet. But regardless of how these groups had attracted their audience, this particular method of price "juicing" has proven its efficiency since on the designated date, XRP had indeed skyrocketed to the level at $0.75, established before the infamous SEC lawsuit, only to crash to $0.36 within the same trading day - a classic pump and dump, though the price had managed to recover back to $0.64 within the next twelve days. And like in the case of DOGE, the whole story around the SEC lawsuit, SatoshiStreetBets, and Telegram groups are far from being over, so expect more pumps (and dumps) until the interest towards cryptocurrencies among retail investors remains high.
It's clear from everything written above regarding social media influencers and large groups of users that are beginning to take up the role of market movers and posing competition to the large players who thought they grabbed the market by the beard. Now, in addition to analyzing the charts, fundamentals, and on-chain data, traders would have to become active participants in Reddit and Telegram groups and start following Elon Musk on Twitter in order to be able to anticipate the next money train.
But while it seems somewhat inspirational that an average Joe from Reddit can partake in the takedown of Wall Street or make a few thousand bucks in a day on the meme coin, it also begs the question, "Do we really need more means for market manipulations?" Is it fair for an abandoned project to have a market capitalization of $2 billion while those that address the burning issues are scraping for pennies? Should the authorities try and regulate social media in order to keep the gullible investors from being burnt after a dump, or would it constitute the suppression of the freedom of speech? Obviously, regulating social media would be a hopeless initiative, so it all boils down to critical thinking and the absence of greed and desire to get rich quickly. It's okay to participate in pumps since we are in this game for profits; just be cautious of those who masquerade them as something fun or noble because, in the end, there are always those who are left holding the bags.
|Exchange||Volume change, 24h|