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 This column is jointly produced by Xiakedao and China Economic Weekly This is the 84th article in Economics Ke Since its inception, the currency’s value has increased by a cumulative 1,923 times. The founder of Tesla has tweeted to help, and it has gone from obscurity to becoming popular in the currency circle-what is the sacredness of Dogecoin? one On December 6, 2013, Dogecoin was born. According to the founder, its original intention was to poke fun at the crazy digital currency market. Since then, the Dogecoin online community using the Scrypt algorithm has developed smoothly. Due to its fast transactions and convenient payment, it has jumped from a "niche gameplay" to embark on a journey of wild growth. How barbaric? As of early May this year, the market value of Dogecoin reached US$85.3 billion. What is this concept? When issued, a single coin was US$0.00026, and now it is US$0.5, a cumulative increase of 1923 times. The rise of Dogecoin is inseparable from the help of one person - Musk, the founder of Tesla. Whenever Musk points to Dogecoin on social media, the value of the currency will inevitably rise and fall accordingly.  Dogecoin and Musk (Source: Internet) In January this year, Musk spoke out, and Dogecoin rose 800% within 24 hours, reaching $0.07 per coin. In February, Musk’s tweet caused Dogecoin to continue to climb to US$0.08 per coin. On April 16, Musk released the "Dog Barking at the Moon" picture. Dogecoin rose by more than 200% in one day, and soared five times in the following five days. As of the afternoon of May 4, Beijing time, Dogecoin has reached a high of $0.5 per coin. It increased 200 times in just one year! As the price of Dogecoin continues to rise, Musk continues to overdraw his personal credit. The popularity of Dogecoin obviously relies on the endorsement of a few celebrities such as Musk. It is no longer a "decentralized" niche payment currency, but an "air currency" full of idolatry and lacking in actual value. Investors certainly hope that Musk will continue to support Dogecoin, but if you think about it, how can Musk maintain the direction of Dogecoin on his own? On May 8, Musk participated in the "Saturday Night Show" program. When the host asked, he blurted out: "Dogecoin is a scam." As soon as this statement came out, Dogecoin fell by 34%, and "close relatives" such as Bitcoin and Ethereum were also affected and fell. This shows that when the concept of investment products and value attribution deviate, a run crisis is already on the way. If investors realize that the speculative value of Dogecoin is much higher than the actual value, selling and stampeding will be high probability events. A speculative market with strong virtual fire will always turn into a bubble. two No matter how beautiful the bubble is, it only lasts for a moment. The right path for financial markets to return to the nature of financial transactions. The essence of finance is the exchange of value across time. Take the traditional stock market as an example. When people buy stocks, they are buying the performance of the company. The company is in good operating condition and shareholders can receive dividends ； The company loses money and shareholders suffer the loss. During the period of holding shares, investors continue to pay attention to the company's growth potential, operating income expectations, and productivity conditions. Found it? Only in the exchange of value across time will company stocks reveal their essential value attribution. The stock market is most afraid of bubbles. Stock markets in various countries have set up transaction protection clauses to remind investors that "entering the market is risky and investment must be cautious." This is not the case in the cryptocurrency market, which has 24-hour non-stop trading and coordinates all time zones around the world. The high information gap has caused transnational investors to "trade blindly" due to information asymmetry. What will come with it? There is speculation, there is speculation, and there is rapid swing between losses and profits. Is the bubble still far behind? If the frenzy is to emerge, it must be guided and controlled as soon as possible. Before Dogecoin speculation intensified, Chinese regulators had already taken action to "cool down" the cryptocurrency market.  Dogecoin (Source: Internet) In 2017, the central bank and seven ministries and commissions jointly issued an announcement that "ICO is an illegal public financing activity and should be stopped immediately." What is an ICO? It is an Initial Coin Offering, which is essentially a financial scam, inducing investors to raise large amounts of funds in advance and attracting secondary market investors to take over, resulting in many investors losing their money. Major financial institutions have also taken action. Recently, China CITIC Bank issued an announcement prohibiting the use of accounts in the bank to trade Bitcoin. Previously, 13 banks including the Industrial Bank of China, the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank and the Communications Bank of China had shut out transactions in virtual digital currencies such as Bitcoin and Litecoin. Why are regulators and financial institutions so decisive? First, many cryptocurrencies are used for cross-border circulation operations of illegal funds and gray property transactions, which increases the pressure and difficulty of regulatory agencies in anti-money laundering, anti-terrorism, and anti-tax evasion. In 2019, Hangzhou police detected a gang that used virtual currency to provide payment channels and settlement services for cross-border gambling and telecommunications network fraud. The amount involved was as much as 50 billion yuan, and nearly 10 billion yuan of black gold was "laundered" every month, fueling the arrogance of upstream black and gray products such as cross-border gambling and new telecommunications network crimes. Second, in order to protect the rights and interests of investors. In November 2020, the second trial of the “plustoken” case, the largest case in the currency circle, was announced. The amount involved was more than 40 billion yuan, and the number of victims was tens of thousands. Human nature is greedy, and there are many people who dream of getting rich. If hard restrictions are not set from a regulatory perspective, people who fall into the speculative trap will only continue to do so. Third, the booming market for cryptocurrency hides huge financial risks. The cryptocurrency market requires the exchange of RMB for stable coins for deposits, resulting in a reduction in the domestic broad money supply M2, causing a shift away from reality and a large amount of funds unable to flow to the real economy. All countries encourage financial innovation and development, but the prerequisite is to support the development of the real economy and optimize the relationship between productivity. Obviously, virtual innovation disguised as financial innovation and running a Ponzi scheme is not included. Let’s look back on some past events. Newton once suffered heavy losses in the Tulip Mania. After this incident, he lamented: "I can calculate the trajectory of celestial bodies, but it is difficult to calculate people's madness. ” Investment and speculation, although they are the same word, are vastly different. The lessons of our ancestors are still in our ears. Text/"China Economic Weekly" Special offer Contributor, Tang Ling, Vice Chairman of Blockchain Finance Research Center, School of Economics and Management, Tsinghua University Editor/Yunge |
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