What is Dogecoin and why is the stock price going down?

THE value of Dogecoin has dropped from earlier record highs.

But what is the cryptocurrency and why is it dropping? We explain what you need to know.

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But first, a word of warning: buying cryptocurrencies as well as stocks and shares is a risky business.

Investing is not a guaranteed way to make money, so make sure you know the risks and can afford to lose the money.

Cryptocurrencies are also highly volatile, so your cash can go down as well as up in the blink of an eye.

What is Dogecoin?

Dogecoin is a cryptocurrency which was launched in 2013.

Originally invented as a joke by software engineers Jackson Palmer and Billy Markus, the Dogecoin has the image of a Shuba Inu dog as its logo.

It has been marketed as the "fun" version of bitcoin.

Two weeks after its launch, the value of it jumped 300% after China banned banks from investing in cryptocurrencies, according to Investopedia.

Dogecoin then skyrocketed alongside other cryptos during the bubble that peaked in 2017, and it fell with the rest of them over 2018.

At its height, Dogecoin was trading for $0.018 per coin, according to crypto data firm CoinMarketCap.

Why is the value of it going down?

At its height on February 7, Dogecoin was trading for $0.085 6.1p) per coin, according to crypto data firm CoinMarketCap.

It has dropped as much as 20% since then and is currently trading at $0.056 (4p) at the time of writing on Monday morning (February 15).

Dogecoin soared to record highs after entrepreneur and Tesla chief executive Elon Musk tweeted about the cryptocurrency.

Other famous people including Snoop Dogg and investor Mark Cuban; have also tweeted their support of Dogecoin.

It first saw a surge on January 29, jumping by a staggering 972% from $0.007 (less than 1p) the day before.

That was off the back of a bunch of Reddit threads calling for it to hit a value of $1 per coin.

The target was an attempt to mirror the recent share surge in heavily shorted companies like GameStop.

Shares in GameStop soared by a staggering 700% earlier in January.

Shares rocketed after an army of amateur traders targeted the games retailer, causing professional hedge funds who'd shorted it to lose billions.

But for the amateur traders, the surge saw them make some serious cash.

In simple terms, "short selling" is when professional investors borrow shares of stock to sell, and then buy them back at a lower price.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

Essentially, they are betting that the stocks will drop in value so they can pocket the profit when they hand them back to the company they borrowed them from.

They rely on the company failing, which makes it a risky way of raising cash.

To prove a point, the Reddit community called WallStreetBets decided to take on the hedge fund by buying up GameStop stock as quickly as possible, driving up share prices.

But the hedge fund still needed to return the borrowed stock so it ended up buying back the shares at a hugely inflated price, costing them billions.

This made the price soar even more. The GameStop losses caused the hedge fund to go bust.

Following GameStop's share surge, Reddit users on other threads referenced WallStreetBet's effort to squeeze out Wall Street hedge funds and urged people to buy into Dogecoin too.

One thread, titled “Dogecoin is the next GME/Bitcoin” (GME is GameStop), said getting Dogecoin to $1 a coin would be "an incredible achievement".

It added it would "completely change the crypto market… Dogecoin to the moon."

Dogecoin also received a boost after it was tweeted by an account called "WSB Chairman", which insists it isn't associated with the Reddit group.

Plus, the cryptocurrency has attracted the attention of Tesla founder Elon Musk recently, sending the value soaring in December.

He simply said on Twitter: "One word: Doge."

Brits are being warned they risk losing all of their money if they invest in bitcoin and other cryptocurrencies.

It comes after a ban on some crypto-related investment products.

We reveal how someone who starts investing £78 a month at the age of 22 could have more than £1million if they keep it up until they turn 65.

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