When Dogecoin (CCC:DOGE-USD) enthusiasts created #DogeDay, many hoped that Dogecoin prices would go to $1. Even fifty cents would have been acceptable. Source: Shutterstock Instead, Apr. 20 marked one of Dogecoin’s worst days on record. Within hours, the coin had dropped from its open of around 40 cents to a close of 32 cents. By the end of the week, the “meme coin” had sunk below 20 cents, wiping out $25 billion of investor wealth. “There was anxiety with larger investors who had big positions that the dog had its day coming and wanted to exit,” said Eric Schiffer, the head of a private equity firm called The Patriarch Organization.InvestorPlace – Stock Market News, Stock Advice & Trading Tips For all purposes, it looked like Dogecoin was dead. But momentum bulls would have the last laugh. As celebrities like Mark Cuban and Elon Musk began tweeting about the cryptocurrency, investors began to buy back in. Almost magically, Dogecoin prices started to rise again. 10 of the Top Nasdaq Blue-Chip Stocks to Buy Now, as investors try to make sense of an asset with “zero intrinsic value,” momentum investors will continue to confound traditional ones. As this week has shown, Dogecoin might be dead — but just not quite yet. Dogecoin Prices: The World’s $40 Billion Prank Cryptocurrency’s biggest inside joke has long confused conventional investors. All coins already have zero intrinsic value and Dogecoin made a point to satirize that fact. Its original 2013 code awarded up to one billion coins per solved block, making DOGE virtually unusable as a form of currency. Fast forward to 2021, however, and DOGE has emerged as one of the most serious money-makers of the year. $10,000 invested in Dogecoin at the start of the year would have turned to over $870,000 at its peak. Ordinary retail investors became overnight millionaires. Technologically, Dogecoin has also grown up. Its once ludicrous mining reward system now runs on a system that mimics a 2.5% inflation rate. A “merged mining” ability also allows miners to process DOGE in parallel with Litecoin (CCC:LTE-USD), significantly increasing its mining pool. Yet, Dogecoin prices seem to have a life of their own. Its major technological overhauls in 2014 coincided with a huge collapse in value. Three years later, the opposite was true; though development virtually ceased in Q1 2017, Dogecoin prices would rise 3700% by the end of that year. The explanation for these movements varies, from a failed Reddit investment scheme to a broader cryptocurrency mania. Recently, DOGE price movements have become stranger still. On Jan. 28, Tesla (NASDAQ:TSLA) CEO Elon Musk tweeted the first of many posts referencing Dogecoin — a photoshopped issue of “Dogue” magazine with Cinza the Whippet on the cover. DOGE prices jumped 500% by the next day, creating a pattern of price rises following any mention by the new Tweeter-in-Chief. Source: Thompson Reuters Dogecoin prices after Elon Musk tweet Other celebrities have since jumped on board. In February, billionaire Mark Cuban told Forbes that he had bought Dogecoin for his son. “It’s fun, it’s exciting and educational for him,” Cuban said during the interview. “It gives you a better chance of winning than a lottery ticket.” That educational lesson might have earned investors billions. By mid-April, Dogecoin’s prices rose so high that it briefly replaced XRP (CCC:XRP-USD) as the world’s fourth-largest currency. The Driving Forces of Dogecoin When cryptocurrencies took off in the early 2010s, Bitcoin (CCC:BTC-USD) dominated. Creating new wallets was a cumbersome process and few investors ventured beyond what they already knew. As such, Bitcoin held at least 95% market dominance through 2016. As high-quality exchanges started appearing, however, Bitcoin’s early lead became less critical. Newer exchanges allowed customers to buy dozens of different coins without creating a new wallet for each currency. The technological barriers to new altcoins started to crumble. In its place, the power of celebrity started taking over. Coins like Cardano (CCC:ADA-USD), Polkadot (CCC:DOT-USD) and Stellar (CCC:XLM-USD) soon climbed the crypto ranks thanks to their all-star development teams. In some cases, technology didn’t even seem to matter. In March, Tron (CCC:TRON-USD) CEO Justin Sun made headlines after losing a high-profile $69 million auction for the most expensive NFT (non-fungible token) artwork to date. The currency of the well-known “hype man of the century” would go on to nearly quadruple by mid-April, despite Tron’s severe plagiarism issues (Sun would go on to blame this on bad “translation”). Today, these same celebrity forces are now driving Dogecoin prices higher. It doesn’t seem to matter that Dogecoin has virtually no development team, nor that its technology is practically identical to Litecoin’s. As more high-profile names jump on board, the cryptocurrency’s price only seems to go in one direction: up. Momentum Becomes the Driving Force Dogecoin’s “celebrity effect” has also coincided with a broader shift towards momentum investing — a byproduct of social media’s role in promoting cryptocurrencies. Many coins now have dedicated fan bases who unwittingly create feedback loops in a coin’s price. Rising prices draw more social-media interest, which causes more buyers to join and so on. The results have been nothing short of breathtaking. An investor who bought one the top-10 mentioned new coins on Twitter in mid-2020 could have seen their investment triple the return of Bitcoin. (Only one of these typically risky initial coin offerings, or ICOs, would sink from its initial price.) The rise of momentum investing has even caught several experienced crypto investors off guard. In May 2020, California-based Cryptolab Capital shuttered its doors after a string of poor Bitcoin returns. Firms like Virgil Capital would resort to fraud to keep the illusion of success going. Momentum, however, is a double-edged sword. The same “hot money” investors are often the first to sell, creating an unrelenting downward spiral. That’s why Dogecoin’s 50% decline last week had investors concerned. Without intervention, the coin was surely set to fall further. Elon Musk to the Rescue Fortunately for Dogecoin holders, though, the coin’s backers had other plans. As Elon Musk and fellow celebrities took to social media in support, DOGE prices started to rise. By the time Musk tweeted “The Dogefather” at 2:20 a.m. on Apr. 28, prices would hit 32 cents the following morning. For Dogecoin, these recoveries matter. Most late-game cryptocurrency investors are “buyers looking to make money,” notes Richard Partington, economics correspondent at The Guardian. Price declines tend to trigger more selling. Trading volume makes the case. DOGE’s initial run to 40 cents coincided with a flurry of buying. As prices came down, volumes remained elevated. In other words, investors were selling out faster than new buyers were entering. Chartists often frustrate fundamental stock pickers with terms like “breakouts” to describe initial price gains leading to further rises (or vice versa to the downside). In the case of Dogecoin, they have a point — a small nudge by a well-timed tweet can become the catalyst to send DOGE to the moon. So, with Dogecoin, invest thoughtfully. It’s no longer investors who are in control of the rocket ship; it’s the famous backers who support the currency of this strange new world. On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article. Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing. More From InvestorPlace Why Everyone Is Investing in 5G All WRONG It doesn’t matter if you have $500 in savings or $5 million. Do this now. Top Stock Picker Reveals His Next Potential 500% Winner Stock Prodigy Who Found NIO at $2… Says Buy THIS Now The post Is Dogecoin Dead? Elon Musk and Mark Cuban Say ‘So Much No’ appeared first on InvestorPlace.