If you’re looking for proof we live in a computer simulation, consider the farcical story of dogecoin. Named after an internet meme about a talking dog, the joke currency was created as a parody of bitcoin. Dogecoin has no practical uses, yet online investors have ploughed billions into it. ‘We thought it would just make the viral rounds on social media,’ said founder Jackson Palmer. Last week the valuation passed $68 billion — more than Kraft Heinz and Ford. Palmer is now worth several hundred million dollars. Not bad for a Twitter gag.
Although it’s seven years old, dogecoin wasn’t a big deal until a few months ago, when supportive tweets from Elon Musk, the world’s richest man, fuelled an explosion in popularity. It is the most successful in the new ‘comedy gold’ asset class: ludicrous investments which reach dizzying valuations simply because people find them funny.
In January, an online mob of day traders banded together to pump the price of a struggling American video games shop called GameStop. They made reckless bets, pouring in their life savings and taking out payday loans. Its valuation soared 85 times and many of them are now millionaires. The GameStop investors had a superficial political goal: to hurt hedge funds which had bet against the company. But really, it was just about the thrill. And soon it spread to other unloved nostalgic stocks, such as Nokia and Blockbuster, which were selected purely because they were so unfashionable.
This was the beginning of the 2021 comedy gold rush. A few weeks ago, it emerged that a deli in New Jersey was trading on the stock market for $100 million. This was mainly down to financial engineering by a Chinese investment fund, yet Hometown Deli quickly became a favourite of irony speculators who pile into anything making headlines. Last week, as the rest of the market dipped, shares in the famously grotty cinema chain AMC rocketed after another surge in investment from the ‘memestock apes’.
The American celebrity media entrepreneur Dave Portnoy is an online genius second only to Musk when it comes to the interplay of irony, investing and the internet. This week, in a special video ceremony, he threw ‘his allegiances’ behind SafeMoon, another joke currency and possible rival to dogecoin. ‘The answer is SafeMoon,’ said Portnoy. ‘Why? I don’t know why… I like the word moon because that is where I want to go.’ Investors duly piled millions of dollars into SafeMoon.
This is the new reality of the financial markets: fortunes are built and markets are moved purely on the basis of whether something is amusing. Making people laugh on the internet has become a credible marketing strategy for a certain kind of entrepreneur. Aspiring tycoons hand free stakes to meme-market influencers such as Musk in the hope they will tweet about it, like a fake-tan brand courting a Love Island Z-lister. It’s a form of mania, clearly, and it’s reminiscent of the frenzied buying which preceded previous stock-market crashes. At the height of the dotcom bubble, investors greedily acquired any stock with ‘.com’ in the name. This time, speculators are hoovering up anything with the potential to go viral online.
Something more fundamental has changed, too. Ordinary punters are influencing the public markets as never before. The internet has democratised investing, thanks to trading apps and cryptocurrencies. In the US, retail investors now account for more trading volume than mutual funds and hedge funds combined. Many of them are young thrill-seekers who want quick, large returns. And the pandemic has thrown gasoline on the fire: when most entertainment options aren’t available, and the Biden administration’s stimulus programme is dishing out free money, market speculation becomes the best fun you can have. If you think our investments are mass delusion, ask the irony speculators, what do you think the stock market is? It’s a good question.
The new army of investors congregate on online forums such as Reddit, where they swap tips and screenshots showing extreme wins and losses. This motivates ever more reckless buying. They look for assets which are likely to get a lot of hype and go on huge bull runs. This is why comedy assets are so popular, because they attract attention. To the online retail investor, attention is the most valuable commodity. To that end, they will passionately advocate for their chosen investments, spamming forums and creating memes about the price going ‘to the moon’.
The holy grail in this hype cycle is a tweet from Musk. When he announced he was hosting US comedy show Saturday Night Live, dogecoin’s price doubled, as speculators prayed he would ‘pump’ the currency on national television. Instead he called it a ‘hustle’ and the price of dogecoin collapsed.
Comedy gold-rushers also have an astonishing risk appetite. Last week the New York Times interviewed one of the first dogecoin millionaires, 33-year-old Glauber Contessoto. After reading a Reddit thread about the currency’s potential, he went all in: maxing out his credit cards, borrowing wherever he could and eventually placing a $250,000 bet. His holding is now worth $2 million, but Glauber isn’t selling. ‘Scared money don’t make money,’ he told the paper, before quoting Warren Buffett, a man who has called cryptocurrencies ‘rat poison squared’.
There is some method to this gung-ho madness. Eye-watering losses are even more popular on Reddit than evidence of gains, and the savvy gold-rusher knows that taking huge risks will help them build an online following, which they can profit from later. But overall it’s a sickeningly risky strategy.
It’s hard not to root for these ordinary Joes who have achieved financial freedom thanks to wild bets on internet jokes. You can even credit them with a degree of skill for understanding the mechanics of social media and the attention economy. But winners like Contessoto seem unaware of the need to get out of the casino while the going is good, or that they are in a casino at all. Online jokes generally have a short shelf-life, and any asset built on the popularity of a meme is unlikely to be a safe haven for your winnings. GameStop is down 54 per cent from its peak. Cryptocurrencies have taken a battering in recent days.
All jokes stop being funny in the end, and all bubbles burst. As Bloomberg columnist Matt Levine wrote: ‘Just imagine travelling ten years back in time and trying to explain this to someone; just imagine what an idiot you’d feel like.’ Welcome to the future.
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