The Breakdown - TikTok Doge Is Everything About 2020 Finance In One Story

Episode Date: July 9, 2020

What’s old is new again! What happens when you combine a mostly hibernating memecoin with the world’s most powerful (and controversial) meme platform, and throw in a new generation of daytraders that have become convinced that they can drive the price of anything up?  The great TikTok Doge pump of 2020, of course.  In this episode, NLW breaks down: The history of Dogecoin How TikTok became one of the most popular, influential, and controversial apps in the world  Why the r/WallStreetBets, Davey Day Trader Global Global, and Robinhood Rally day trader movement perfectly set up this pump  How #TikTokDogecoinChallenge began to trend  What has happened to Dogecoin since the trend started Why this all makes a weird sort of cynical sense

Gather round, friends, as I tell you the tale of the single most 2020 financial story imaginable. It is the tale of a virtually dead internet meme coin from 2013, resuscitated by an internet meme feeding platform that is at the center of a geopolitical conflict between China and the United States. Yes, this is the story of TikTok and Doge. Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by BitStamp and Crypto.com. The breakdown is produced and distributed by CoinDesk.

And now, here's your host, NLW. Welcome back to the breakdown, guys. It is Wednesday, July 8th, and yes, we are telling the story of TikTok and Doge today. As you might guess, I think this has much more to say about the moment that we're living through than just some headline grabbers. So I want to give you my take on what makes this story so relevant for this moment. So to understand this story, we have to start with the background of Doge itself. So the meme for Doge started before the coin. The meme was based on a 2010 photo and became popular in 2013.

The original meme was a picture of Shiba Inu with Comic Sansa. font featuring the Doge's inner monologue. It was Know Your Memes' top meme of 2013. Dogecoin then started as something of a joke or at least just a fun, playful experiment in cryptocurrencies. So in December 2013, Billy Marcus, who was a programmer, wanted to explore a broader, more fun appeal for cryptos and started talking about Dogecoin. Because of Twitter, Jackson Palmer, who was then a software developer at Adobe, learned about it and helps build out the landing page and got it going. Now, I want to read from the Wikipedia about Dogecoin in that December of that year,

just a few weeks after it started. On December 19, 2013, Dogecoin jumped nearly 300% in value in 72 hours, with a volume of billions of Dogecoins per day. This growth occurred during a time when Bitcoin and many other cryptocurrencies were reeling from China's decision to forbid Chinese banks from investing into the Bitcoin economy. Three days later, Dogecoin experienced its first major crash by dropping by 80% due to this event and due to large mining pools seizing opportunity in exploiting the very little computing power required at the time to mine Dogecoin.

Now, eventually, Dogecoin would get as high as a $2 billion total market cap during the insanity of 2017 and early 2018. So that's the background on Doge. And I guess the last note that's worth noting in terms of how alive or dead Doge is, even the creator is not even involved in Bitcoin and crypto anymore. Jackson Palmer furiously left the space after getting into one too many Twitter fights in 2018 and really hasn't looked back ever since. Let's shift over to TikTok now as well, because for one of the most popular apps in the

world, it has a slightly different and weirder history than a lot of the things you've seen like Instagram or Facebook. ByteDance was a Chinese company that was founded in 2012, and it launched an app called DuYin for the Chinese market in 2016. Now, TikTok, which was an outside of China version of DuYin, which in other words means that it didn't have the same censorship requirements, came out in 2017 for iOS and Android. But the real juice came in August of 2018 when TikTok merged with Musically, which was a really, really fast-growing lip-sinking app that was just, like I said, absolutely crushing the markets. By October of 2018, the new TikTok had become the most downloaded app, which was the first Chinese app to achieve that in the U.S. App Store. TikTok was in fact the most downloaded app of the app store in 2018 and 2019 and has more than a billion downloads to its name.

Basically, the gist of TikTok and why I think it's so popular is that it turns audio and sound into memes, and you can act out these memes. But that's a really big thing. powerful thing. When we think about how much memes shape visual and written internet culture, it also makes sense that they would shape audio visual culture. By reducing the time that you had for each of those memes to 10 seconds, 15 seconds, really only up to about a minute, TikTok created the perfect environment for a type of media that was still relatively easy to create, had meme value where people took the same sounds and acted out similar things over and over again, but were able to add their own creative input.

Important to understand is that TikTok has become a major force for driving music into the mainstream. You may have heard some of these songs on TikTok first. How many of you have one day found themselves singing Rockefeller Street in this incredibly high, pitched up version? What about this Savage Love remix? Did someone break your heart? Then of course there's roses, which is currently screaming up the charts right now. And if you're feeling way out of it and like you haven't heard any of these songs, don't worry, because I have one that will make the point exactly. Old Town Road, also known as the longest continuous number one in U.S. popular.

charts history started as a TikTok song. And importantly, Little Nas X was intentional about this. This wasn't some accident. He knew he had been studying the medium and was the first one to upload the song to TikTok. In fact, he designed the song the way that it was set up to work inside the TikTok medium. He spent months promoting it getting TikTok influencers to maybe record a version or a clip with that as the song. I could spend an hour on the cultural significance and just the marketing brilliance of Little Nas X around that, but suffice it to say, everyone has heard Old Town Road, and that's because of TikTok. So now we have the two platforms set. We've heard about Dogecoin and where it came from, and we've heard about TikTok. Clearly, this is a deeply internet

story. But what happened with this latest story, this latest event, this latest Dogecoin pump? Well, to understand it, you have to go back first to the Robin Hood rally that has been one of the major financial stories of the year. Even before the crisis, in fact, just before the COVID-19 crisis hit, Wall Street Betts, the Reddit Forum, was already on the cover of Bloomberg Business Week, and spoke to a phenomenon that has become even more important in markets since the article premiered. This came out in February, and I think it's so acutely relevant for so much of what we've seen, seen since then that I'm actually going to read a bit of a long excerpt from it. I'm going to kind of jump around the article. I think you'll see why it's so important to share this in

more completion than I normally would. In a dingy corner of the internet is a message board, soaked in profanity, brospeak and greed, where posters with handles such as overthrow your masters and Yolotron campaign for their favorite stocks, putting up screenshots from their online brokerage accounts of their moonshot victories, or showing off their massive losses like badges of honor. Some of them think they've found the key to fast wins on the stock market. Wall Street doubts they're right, but it's getting nervous about what it sees there. The do-yourself traders of R-slash Wall Street bets are waging a kind of guerrilla warfare in the markets, trying to exploit what they see as weaknesses in the system to move prices where they want them.

What this moment shares with 1999 is a rising belief that someone else will come along to buy a surging stock at an even higher price, regardless of fundamentals. But while traders at the end of the millennium were willing to wait around for a, quote, greater fool to show up, this generation believes they can conjure up those buyers through its own trading sleight of hand. Members of R-Slas Wall Street bets believe they discovered a kind of perpetual motion machine in the interplay of stocks with options contracts, which offer a cheap way to bet on whether shares will rise or fall without buying the stock itself.

It goes like this. Members make bets that rely on market makers, the professional middlemen who sell you a call, a bet on shares rising, or a put, a wager on a decline. Market makers, like good bookies, don't want to go out on a limb. When taking a bet, they lay off the risk. If someone buys a call, for instance, speculating on a rally, the dealer buys stock in the underlying company. If the stock rises, the dealer may have to pay out on the option, but that's offset by a gain on the shares. When shares keep rising, managing the hedge entails buying more stock. That's where the Reddit set perceives a weakness. A favorite tactic on R-slash-Wall Street bets is to swamp the market

with call purchases early in the morning in an attempt to force dealers to keep buying stock. Up and up everything goes, supposedly. As the stock price rises, so does the value of the calls, often by far more. In this worldview, the only constraint on success is the force of one's own conviction and willingness to act upon it. Keep in mind, this was written in February before the crazy rally that we've seen since the Fed got involved post-COVID-19. From here, and if you're a regular listener of the breakdown, you'll know exactly where I'm going. We have to enter Davey Day Trader Global Global. Dave Portnoy was the founder of Barstool Sports and was already a master of media. He understood internet culture and internet style media way better than traditional

financial media did. And even before this financial crisis, there were so many. people on Twitter calling for the barstool of finance, right? The barstool media for finance. Well, when sports got shut down, Portnoy himself decided to step into that gap. And he started day trading, and he started doing it live on Twitter with his audience there along with him. I could describe his sort of conversion experience, but I think it's better to just hear it for himself. This is from a Fox business interview where he describes the mistakes he made at the beginning, doing what seemed like obvious things based on fundamentals, and instead what he learned. So yeah, when I got involved, I learned what shorting the market was. So I bet against Boeing a little

bit. I bet against Lulu Lemon and I got my butt kicked. And then I realized that stock market has no effect on the real world and vice versa. That it's its own universe. That's it's a own universe. that the wise guys on Wall Street, the pinstripe suits, has the thing all rig for their benefit. And once my brain adapted, it was able to figure it out, quickly I realized stocks only go up. So we just keep betting on stocks that go up, and they keep going up. So since then, it's been a pretty easy game. Dave Portnoy and Davy Day Trader Global Global have become a totem for the idea that stocks always go up, that the Fed will print to infinity, or, as Portnoy himself puts it, they will print

Shrewd bucks, i.e. the office fake money from Dwight Shrut, until stocks go up. It is a cynical, almost nihilistic point of view, but one that honestly has paid off so far for Portnoy, and I think even more than a good investment strategy is something that we can recognize and respect as sort of a rational response to what people have seen. And I think it's really important to be able to separate the reality that we would like from the reality that we have, where I do believe that on some level at least, this sort of cynicism is understandable. Of course, the apex of this was the Hertz bet. Hundreds of thousands of people crowded into a stock that was literally bankrupt. People like

Joe Wisenthal said that they'd seen lots of different manias and they had never seen anything as inexplicable as this, but I want to remind you of that line above. Quote, what this moment shares with 1999 is a rising belief that someone else will come along to buy a surging stock at an even higher price, regardless of fundamentals. But while traders at the end of the millennium were willing to wait around for a greater fool to show up, this generation believes it can conjure up those buyers through its own trading sleight of hand. The only thing that I'd add is that instead of slight of hand, you're talking about sheer

force of will, a global game of chicken to drive the price of an obviously useless, valueless asset to the moon, hoping that someone else will fomo into it. For those of us who had been in crypto, the very obvious question was, will this spill over into crypto? You had numerous people make the connection that the 2020 stock market felt like nothing, if not, 2017 crypto. On June 8th, exactly a month ago, I tweeted, does the Robin Hood rally, create a new generation of retail crypto investors. A, yes, they're hungry now. B, no, because they can invest in real companies and get the same rush, thanks Fed, or C, it's complicated. Forty-one point-nine percent of more than 800 people voting said A, yes, they're hungry now. One month on from that,

it's very clear that the A's, the 42% that said yes, they were going to spill over into crypto, were dead on correct. BitStamp is the original global cryptocurrency exchange. Since 2011, BitStamp has been the preferred exchange for serious traders and investors, trusted by over 4 million customers, including top financial institutions. BitStamp is built on professional grade trading technology. Their platform is powered by a NASDAQ matching engine, and their APIs are recognized as the best in the industry.

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and enjoy these offers until the end of September. So, what happened? Six days ago, the TikTok that I'm about to play from you from James G97 went baby viral. Let's all get rich. Dogecoin is practically worthless. There are 800 million TikTok users. Invest just 25. Once the stock hits $1, you'll have $10,000. He says, tell us. everyone you know. This got the doge ball rolling, and soon we started to see more videos like this one. Everybody, please listen to me. This is Dogecoin.

If you know nothing about investing, it doesn't really matter. Go put $25 into this, and that will be 10,000 shares, okay? And if this reaches $1,000, you will have made $10,000. Please just try it out. Go pump it. Of course, not everyone was into it. Virtual Bacon, who is trying to stake out a TikTok crypto place, produced this video. So we got some smart asses buying Doge coin on Robin Hood today, and they are promoting it as the hot new stock.

These guys don't even know the difference between a crypto and the stock. So take that how you will. They also think Doge is super cheap at only $0.0026 right now. Wow, this is so cheap. If this hits a dollar, I'm going to be rich, right? you stock bros are going to get ficked. Check out the circulating supply of Doge. That's $125 billion.

So if Doge hits a dollar, it will have a market cap of $125 billion. Which means this meme coin that is literally monopoly money will have a market cap that is twice as large as Uber. Wow, super realistic, right? It's so cheap, right? Yeah, keep going, man. I can't wait to see what's going to happen. However, despite Virtual Bacon's protestations, it has now, made it to Twitter. At midnight last night, D. Faso shared the original video and asked for a

retweet. So far, more than 1,300 people have complied. Keem, the creator of popular YouTube channel Drama Alert, and possessor of a 2.8 million strong Twitter following himself, tweeted this morning by Dogecoin, which has been liked more than 5,000 times and climbing. Those of us in the crypto community have seen something like this before, right? So first, we have, the appeal of a ridiculously cheap-seeming asset. 0.000-0-0-029 cents or whatever it says, right, when you look at the price of these assets, makes people's little lizard brains go, holy crap, if only that could go up a little bit. It's so cheap now. So the appeal of a ridiculously cheap-seeming asset is been with us for a very long time in the alt-coin world.

Second, the beautiful simplicity of, if it just goes to $1, how many times have you heard if it just goes to $1, then X will happen? This money that you'll make will be incredible. Of course, what this ignores, as Virtual Bacon pointed out in his response TikTok, is that the total circulating supply of these things is so huge that going to a dollar would require these things to have valuations much, much bigger than the biggest companies in the world. world. It's literally impossible. A third part of this appeal is the appeal to the crowd to try to get something to moon, right? The we're in this together, we can pump this together. To exert agency on a market, there's a powerful instinct to that. It's not unlike this coordinated pump strategy of Wall Street bets, which has to do with both, I think, a desire to make money, but also a desire to take power back to claim power for the group. Finally, there is, of course, the why not power

of memes, why not try to drive something up? And we'll talk a little bit more about that in just a few minutes. But first, let's talk about what has happened since six days ago. This Dogecoin TikTok challenge started to go viral. According to Masari, volume is up over 2,000% on Dogecoin and prices up 35%. Many in the crypto community are dusting off their old day trader hats because why the hell not? And I think that's what makes this. story so quintessentially 2020. We have a meme coin that no one has discussed seriously in years, start to pump because a horde of teenagers who cut their teeth on bankruptcy stocks during a jobless pandemic lockdown, decide to start re-meaming this dead meme coin through

the most powerful meme platform in the world right now. which, by the way, is increasingly considered a thinly veiled surveillance tool of the Chinese government on American shores, and, consequently, which the U.S. is actively considering banning, which is something that India did just last week. The story of 2020 is a world spinning completely off its access, and people in turn rejecting even the hint of conventional wisdom, because there is absolutely nothing conventional about the time we're living through. Is Dogecoin pumping based on TikTok memes absurd? Yes. Are people going to get wiped out? Some probably are. Is this any worse than what has been going on in the stock market? Absolutely not. So my advice, enjoy it while you can,

because TikTok looks to me increasingly like a sacrificial lamb in the new China Cold War narrative that a lot of people are trying to push. So that's my take on one of the weirdest and most quintessentially 2020 financial stories imaginable, TikTok and Doge. That's it for today's episode, guys. And just to follow up, I guess, a little bit of housekeeping for those who have stuck around, I want to try experimenting with figuring out the right days to do the brief or not. So some days that are more interview-based, I'm going to do the brief because there may be those of you out there who want to get your take on the news, but who don't necessarily want to hear the interview because it's a guest that doesn't interest you or whatever.

So I think I'm definitely going to have the brief on those days. On some days where I'm doing just my analysis, I may do a brief as well if there's a few stories that I think are really, really important. But I also may decide on those days just to keep it really tight into the point, right? Like today, I just wanted to dive straight into this TikTok Doge story. So those of you who have made it this far, I appreciate it. And let me know what you think. Do you want the brief before the show every day, no matter whether it's an analysis or an interview?

Do you want it just on interview days? Do you want it maybe after? You know, let me know what you think. It's all a work in progress, and I'm really interested in your opinion. So anyways, guys, thanks as always for listening. And until tomorrow, be safe and take care of each other. Peace.