Dogecoin’s 12,000% Rally Spurs Hunt for Next Crypto Winner

The jump from one speculative asset to another is indicative of the broader frenzy that has driven up prices for a range of assets including stocks, commodities such as silver and cryptocurrencies. It also shows how new investors with savings bolstered by stimulus checks and who are spending more time at home during the Covid-19 pandemic have become a volatile new force in financial markets.

Their bets, usually fueled by rumors and speculation in online forums and chat groups, are prompting more seasoned money managers to warn that markets are overheating, and that small investors could be hurt when prices reverse course.

“It really does feel like a slot machine,” said Susannah Streeter, senior investment and markets analyst at U.K. asset manager and stockbroker Hargreaves Lansdown. “They’re thinking, which one is going to make me a fast buck between now and six months’ time? It’s based on speculation, and not the underlying value of that coin.”

Chatter on internet forums and a fear of missing out is leading to the frenzied buying, she said. But it isn’t clear which digital currencies and technologies will ultimately gain widespread acceptance. “You really risk getting your fingers burned,” Ms. Streeter cautioned.

Celebrities’ interest in cryptocurrencies has also fueled the surge in interest. Rapper Lil Yachty, who has five million

Twitter

followers, tweeted last month to say “told y’all [SafeMoon] was goin up.” YouTuber Jake Paul also promoted the crypto to his nearly four million followers.

SafeMoon has rallied more than 20,000% since its launch in March, trading as high as more than one hundred thousandth of a U.S. dollar for a market value of about $3.7 billion. The cryptocurrency is designed to reward people who hold it: Anyone selling SafeMoon is charged a 10% fee, and part of that fee is redistributed to existing holders.

Caleb Paul, a 35-year-old who works as a construction safety coordinator in Louisiana, began trading cryptocurrencies this year. Mr. Paul invested $1,000 in SafeMoon last month, and plans to stay invested for a while in the hope of seeing the price hit 1 cent.

In the late 1990s, investors’ frenzied bets led to a massive boom-and-boost cycle in dot-com stocks. Illustrative of the broad euphoria of that time, a craze developed for Beanie Babies: sold in toy stores for about $5, some of the stuffed animals were valued at about $5,000 by collectors. When the fad faded and supply grew, the bubble imploded.

A previous generation of “altcoins”—or alternatives to bitcoin—saw the rise of litecoin and Bitcoin Cash in 2017, as well as thousands of smaller ones such as PinkDog, MagicCoin and BitSoar. That rally was fueled in part by a boom in a new fundraising method called initial coin offerings, which later came under fire from regulators. Many of the crypto alternatives have also failed to make money for their backers, or collapsed entirely.

The potential for losses isn’t deterring Stephen Roach, a 39-year-old cinematographer in London. After losing money on XRP, a digital asset from Ripple Labs Inc., he began buying VeChain last year. His roughly $950 investment in VeChain is now worth $71,000, as a wave of new buyers have piled into the crypto project from China in recent weeks.

VeChain’s price has risen more than 900% this year, giving it a market value of about $13.3 billion. The tokens traded at about 21 cents apiece on Thursday.

Part of the appeal of the cryptocurrency was its relative cheapness, Mr. Roach said. “It never needs to get to $50,000-a-coin to be life-changing for you because it’s under a dollar. All it needs to do is get to $10.”

Others disagree. “Cheap doesn’t mean a bargain, it’s only a bargain if it rises. If it is cheap, it’s also potentially because it is worthless,” Ms. Streeter said.

Investing in such altcoins is particularly risky as cryptocurrencies are relatively new investment products that are harder to trade and don’t have the same level of oversight by U.S. regulators as stocks and bonds. That can make these assets prime ground for fraud and theft.

Many of these digital assets also have low liquidity, said Charles Hepworth, an investment director at GAM Investments. When sentiment reverses, many inexperienced investors may discover that they can’t exit their bets or get their money back, he said.

Eventually, authorities are likely to intervene with taxation or regulations that take the air out of these markets, said Mr. Hepworth. “Once there is a mass stampede out, you’re not going to be able to get out.”

Smaller cryptocurrencies also tend to be even more volatile than bitcoin, which frequently jumps up or down over 10% in a single trading session. This can lead to steep and fast losses for investors.

At least for now, some traders see that volatility as an opportunity to make money, or to just have fun with markets. “They can take a 25% dive in the same day as they go back up, and that’s exciting,” said Mr. Paul.

He has also invested in VeChain, and says he is braced for any sharp downturns in crypto prices. Ultimately, he’s still a believer.

“Doge has proven that hype makes money,” Mr. Paul said.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com