Signs that lesser known DogeCoin is in a bubble

Robinhood is revolutionary because it brings the potential to trade stocks to anyone that has a smartphone. As a strong advocate of personal liberty I consider this mainly a good thing- most people can now trade at their discretion and can more easily access financial freedom. However with the increased access that “retail” investors have to wildly speculative bets- such as in the case of Hertz (whose stock jumped shortly after they announced bankruptcy)- there is certainly going to be an increased chance that novices looking for easy, fast money will be enticed with claims of being able to make lots of money in a short time period based off the amount you invest. Small, illiquid investments, such as DogeCoin, tend to be especially prone to fraudulent manipulation and price bubbles because it is easy to send the price higher due to its illiquid nature. Stocks like Amazon can see more than 500 million shares trade hands and will only budge 1.80 percent on any given day, mid and small caps stocks, such as CROX, may only see 95000 shares trade hands but their stock will move twice as much in percentage terms.

Recently on Twitter there was a trending hashtag, #Dogecoin. As of writing this hashtag is trending at number two. Upon clicking on these posts one will see market manipulation in broad daylight, a semi-Ponzi scheme where the only winners are people who cash in and sell all their holdings in DogeCoin before the bubble pops. On any of these pumped, speculative bets that have caught fire there will be people who get in near the top (I’m sure by the time most people hear of the potential to make easy money in DogeCoin the bubble will be at its peak) and regrettably lose all their money invested because they didn’t get out quick enough or they never even had a chance to sell for a profit. And, just like a Ponzi scheme, a stock market bubble only supplies value as long as people are still supplying money to increase the asset price. All it would take would be a slight showing of fear in the market- maybe in the form of an extended price drop- for panic selling to occur. The other problem with market manipulation is it demands a constant steady flow of buyers. The invested money of robinhood investors makes up less than two percent of all the money in the stock market, which tells you that even if every single retailer investor out there was buying DogeCoin, all of them hoping to cash out on huge profit, the bubble would eventually have to pop no matter what. Sellers cashing in on profits will inevitably outnumber the buyers which could lead to a chain reaction, crashing the bubble and erasing the savings of a lot of people who were looking for an easy way to make money.

By no means, however, am I suggesting that we should impose restrictions on the novice investor. I am also not suggesting that the stock market as a whole, or even in certain sectors, is in a bubble although it is worth noting how many of these bubbles are happening partially because of retail investors. One of the keys to figuring out if you’re invested in an asset bubble or not is whether or not you believe the current market or individual stocks are in a bubble. What I find is it is hard to call when markets are inflated because the sign of a true bubble asset is that no one believes they are in a bubble; in a bubble everyone is a buyer. Asset bubbles are represented by irrational exuberance (in the case of Dogecoin everyone thinks they are going to make a profit,) and I assure you there is no shortage of bears in the market- only recently did hedge fund managers reduce their short positions by 80% (which could also mean we are close to the end of the short-squeeze related gains in the market). For every headline that says now is a good time to buy, there are 5 headlines claiming we are in a bubble. Asset bubbles only form when everyone is buying. However, rampant inflation and asset bubbles always run in to the same wall, namely when everyone runs out of money it (either the price of the asset or the inflation rate) decreases.

I don’t have any sure-fire ways to guarantee that retail traders won’t make their lives worse in pursuit of easy money, but I can guarantee that government restrictions on retail trading will do more harm than good. However I do have an approach that is both logically sound and has never been tried before- but that’s the topic of a different blog post. In short, I think public education is a brutal mistake in which America and other developed countries are paying the price for, which would explain the lack of understanding of what makes a good investment by many beginning traders. To my novice investor friends: don’t trade stocks that don’t seem to have an inherent value to them, for example- shares of Hertz or Dogecoin. Panic selling can happen overnight seemingly. In the short run there is always fluctuations; but in the long run, markets (with no outside interference) never fail to assign correct valuations to whatever is being bought and sold. An asset that has no value to back it up will eventually expire worthless.

Edit: I wrote this post last night and already the Dogecoin bubble has popped, and many seem to have lost their money.

There is an endless amount of posts on twitter today from people who lost money In DogeCoin.

Unfortunately the stock market and other forms of investment will be the ultimate victim here. As more people feel betrayed because of their losses incurred in the cryptocurrency market, they will accuse the financial markets of being rigged towards the rich and unfair. In reality- history repeats itself and there is no easy way to eliminate scams and Ponzi schemes. If we could educate more people on financials and how to identify a proper investment- which is part of what I hope to do through this blog- their will be much more enthusiasm for the stock market which will help more people have access to financial freedom. In my opinion, the only two venues for making the world a better place are by protecting personal liberties (through classical liberalism) and education. Everything else (solutions to climate change, less government regulation, and so forth) will stem from increases in quality of education and less restrictions on people’s liberties.

How will mandated shutdowns affect the people they are meant to protect?

Anyone that has read or even studied Adam Smith understands he was a huge proponent of personal freedom. For those that have never heard of him, he is considered the father of modern capitalism, an ideology that most people identify with America (even though Smith himself was Scottish.) Part of what I hope to explain in this blog is how America has actually strayed far from natural free-marketism and how citizens of this country are now dealing with the consequences of these actions. Smith, in following the teachings of John Locke, argued for personal freedom from tyranny for everyone, no matter what traits can be used to describe said individual. Adam Smith said that citizens of a country can only truly be free if they are all entitled to the rights of life, liberty, and property. In Smith’s writing he makes it clear that any government that infringes or violates these rights should be considered tyrannical. This is a very different argument than ones that are commonly given by people who are on either side of the political spectrum. Those on the left believe everyone has the right to equality while those on the right believe in the right to live traditionally. Locke-ism is about the right to opportunity. “It asks a meaningful question to the citizens who are governed by this ideology: “given that you have the opportunity to pursue any type of life you desire (as long as you do not infringe upon the personal liberties of someone else), what will you make of your life?”

Now that the most important teachings of Locke (later expanded upon by Smith) have been glossed over, it will be easier to understand how Smith’s views on personal liberties are related to the argument surrounding reopening the economy. As of today (6-30-2020) there are 16 states pausing their reopening plans with many more, such as Texas (which closed bars and gyms, among other things), taking more stringent measures. Most if not all states are seeing rises in their weekly moving averages of new cases (partially offset by increased testing capability) but this is no surprise considering most of America was starting to reopen less than two weeks ago. The question was never whether cases would increase after reopening or not (most knew it would), but whether America could stay stuck at home for much longer, waiting on a vaccine that could be years (especially if the rate of vaccine development in the past is any major clue.) For those on the left-wing, the answer seemed clear: America should stay in lockdown as long as it would save lives, which the lockdown clearly was doing.(?) The cost to the economy is small compared to the potential lives saved. For those on the right the answer was equally clear: the job loss and economic destruction will be felt for years already, any further increases in lock down duration would lead to large amounts of small businesses shutting down and people losing their livelihoods. There is some things that both sides fail to consider; namely, the other sides’ viewpoint but also the agency of individuals as well. Left wingers fail (and often make this same mistake repeatedly) to consider the free will and and rationality of citizens, to put it bluntly: people are not sheep waiting to be led by the shaman. Most people are actively doing the most they can to keep themselves (if they are vulnerable) or others (if people around them are vulnerable) up-to-date with important information on the pandemic and also safe as they recognize the threat that Covid poses to survival. Survival is hard-wired in pretty much every adapting organism’s brain, so it doesn’t make sense that we would need to do things like shut down an entire economy to keep vulnerable people from taking a risk with with their own lives. On the other hand, I don’t see a clear reason why we should value people getting haircuts over human lives. Adam Smith would have agreed with reopening the economy, and in fact would have argued against shutting down at all. However he would be arguing for the right reasons. When learning econ it is common for a student to pick up the notion that government should be active in policy making that works on stabilizing the economy, which means increasing spending during bad times and decreasing during good. Part of the reason for the rush To reopening is that government is attempting to stabilize the economy and bring us out of the current downturn.) Adam Smith argues that government intervention to stabilize the economy is an utter waste of resources and leads to less than optimum wellbeing in the long run. Fluctuations are natural and government is everything but inefficient when it comes to spending resources in the hopes of stabilization. In the case of the pandemic shutdown, without government intervention, the truly innovative companies would have found ways to adapt and increase market share at the cost of companies with a lack of innovation. This, in the long run, is what we would all like to see, even if we don’t realize it. However I believe this only holds true in the case of natural down turns, not government induced shutdowns where some businesses are considered essential while others are not allowed to operate at all. As radical as it may seem, I think it was in all of our best interest not to shut down at all. I recall seeing several pieces of information that cited research that suggests that most citizens followed shutdown mandates before shutdowns were enacted. This is shown in the data through things such as consumer spending at restaurants and other places people generally stayed away from because of the virus. In another piece of research it was shown that were was little to no correlation between the speed at which states enacted shutdowns and death rates. In other words, states that waited a week or two to announce a shutdown didn’t see a significant difference. Perhaps you may derive your own meaning from these facts, but the way I look at it is that most people did not need to be told how scary the virus was, they figured it out on their own. Most of the time at least a week before government officials were able to figure it out. Partially boosted (if not enabled by) social media. Consumers optimized and decided the price of catching covid was higher than the price of not going to the gym or hair salon.

So what DID the shutdown do exactly?

In an ironic twist, it hurt the worst-off, most vulnerable of all of us citizens. When they shut down the economy, government officials were able to pick exactly which businesses had to be shut down and which businesses were able to reap the benefits of pent up consumer demand. For some people, almost always the most worst off of us all, the price of losing a job is higher than catching covid, but the shutdown made sure that people did not have this option between potentially catching covid or losing a job. For some it meant that the cost of food has risen or become less accessible in some way, as the most poverty stricken of us all are now unable to order cheap, hot, and ready food without a phone or a vehicle. For others they would almost always rather be at school or work than locked in a house with potentially abusive family members, but the government limited the options consumers could pick from to just one. Instead of consumers having the option to pick between more expensive products that come with a reduced risk of catching covid (for example buying a membership at a gym which recently raised their prices to reflect the extra cost incurred to keep the business sanitized at all times) and a cheaper alternative with a higher potential chance of being exposed to covid (which would appeal to those who either can not afford an increased set of prices on goods or those who do not feel the drawbacks of catching this virus would be greater than the pros of cheaper goods.) Because of the shutdown all consumers are forced to pick the expensive alternative or nothing, which hurts consumers and suppliers who would otherwise fill the need for cheaper products.

Yes a shut down will save lives for the duration it is in place, but it also makes a lot of peoples’ lives unbearable.