Dogecoin, a cryptocurrency born as a joke and touted as Elon Musk's favorite cryptocurrency, hit its lowest level since early April yesterday.
What is the cause of the collapse? On Friday, in the latest move of China's war on cryptocurrencies, the provincial government of Sichuan ordered 26 of the largest cryptocurrency mines to stop working.
Chinese authorities already gave investors a nasty surprise last month when they said digital currencies shouldn't be used as a payment and banned financial institutions from providing crypto services. They have also blocked bitcoin mining in the country, the process by which new units of digital currencies are created and blockchain technology is maintained.
What does all this have to do with dogecoin?
Dogecoin was created in 2013 by Jackson Palmer and Billy Markus. It is based on the popular Internet "meme" of a Japanese type of dog, the Shiba Inu.
It started as a parody, but even after Tuesday's decline it boasts a market cap of just $ 24 billion, higher than most other cryptocurrency projects.
You may be wondering why dogecoin has accumulated so much more than other cryptocurrencies since it is just a meme cryptocurrency after all. The answer is simple, I suspect it has to do with dogecoin being "high beta".
When other cryptocurrencies rise in value, dogecoin has a tendency to go to the moon. When other cryptocurrencies fall, however, it falls even stronger.
This is exactly what happened this week. China's latest crackdown has brought down several popular cryptocurrencies such as Bitcoin and Ether.
The turbulent months of Dogecoin
Speculators who have bought dogecoin in recent months have faced a wild ride, in part due to its hypersensitivity to market news and the wave of bullish tweets from Elon Musk, who is known in many circles as the "Fed" of the world. crypto. It has increased by almost 4000% since the beginning of the year.
Doge quickly gained recognition as Musk's favorite. There quotation dogecoin on Coinbase Pro last month also lent some legitimacy to the cryptocurrency.
What should crypto investors do now?
With all this in mind, where is dogecoin headed? Given its volatile nature, is this a classic case of daily crash that corrects itself later?
The problem with dogecoin is that, like all cryptocurrencies, it has no fundamental use or value, to the point that even project co-founder Markus said earlier this year that cryptocurrency is a good "barometer" for how distorted digital currency is from reality.
So even if Musk tweets in favor of the doge, it is more likely that speculators have finally woken up and realized he isn't serious, which shouldn't have been surprising in the first place. As for the broader cryptocurrency market, the impact of the latest Chinese crackdown is less certain.