The cryptocurrency industry is undoubtedly at its most vibrant ever. Thanks to the steady rise in asset prices and the promise of additional institutional investment coming in, demand for cryptocurrencies is currently enjoying close to all-time high levels.
It won't be too far-fetched to say that no one particularly expected to see such levels of activity - whether in the crypto market or the financial market. However, January was an especially unforgettable month, providing what could very well be a precursor for the entire year.
A Perfect Jolt for the Crypto Industry
The year began with Bitcoin hitting a new all-time high, setting a price above $40,000 for the first time and reigning supreme as still the best investment asset in the world. However, while many hoped that things would get better, the market seemed to stall. Bitcoin dropped back into the $30,000 region, and it seemed like the market needed a bit of a jolt to pump it once more.
Well, that jolt eventually came - albeit in a form that no one expected. Wall Street was rocked by the GameStop saga - an incredible tale that involved people on Reddit aggressively acquiring GameStop stock and pushing it to astronomical heights.
The action came after these investors had heard that Melvin Capital, a New York-based hedge fund, had shorted the company's stock. Whether in a bid to save a beloved company or just an act of defiance against the operating machinery that is Wall Street, these investors banded together and pushed GameStop's stock to over 600 percent in gains across just a few days.
These Redditors essentially crushed Melvin Capital's position and forced the company to seek additional funding to keep the lights on. The company had lost $7 billion due to the Redditors' action - definitely not how it hoped to start 2021. It was mayhem on Wall Street, and things seemed like no one was able to control the world's financial system anymore.
Redditors Move Into Crypto
As expected, the GameStock fairytale soon came to an end. Investors got antsy and soon began selling the company's stock en masse - just as fast as they had bought it. Instead of abandoning their activities, however, these investors appeared to have just moved on to something else. They understood their power as a unit, and there was no way to take that from them.
Where did they go? Well, crypto.
On January 28, a Twitter parody account for r/WallStreetBets - the Reddit channel that had instigated the GameStop saga - asked on Twitter whether DOGE, the famous dog-themed cryptocurrency - had ever hit $1 in value. That question set off a buying spree, with investors immediately jumping towards the asset.
According to analysis from crypto data service The TIE, DOGE's Twitter volume - a metric that tracks daily tweets weighed up against a 30-day average - shot up in 2r4 hours after the parody account had made that tweet. All in all, there were 89,991 tweets about DOGE within that period. That incident marked the first time that any cryptocurrency will surpass Bitcoin when it comes to Twitter volumes.
DOGE's trading number shot up as well. Data from CoinMarketCap showed that the asset jumped 342 percent in 2 hours after the tweet. DOGE also broke into the top 10 digital assets by market cap for the first time since 2015.
To be fair, Reddit investors weren't solely behind the DOGE pump. Several celebrities had an input as well. For instance, Mia Khalifa, a famous TV personality, tweeted that she had bought the asset as part of her maiden foray into the crypto market.
Tesla CEO Elon Musk was also all over Twitter, pumping the asset he has been supporting for years.
Exchanges Falter Terribly
With such massive interest for cryptocurrencies - mainly, Bitcoin and DOGE - investors flooded the crypto market once more. Sadly, this time, exchanges just weren't ready. Several top exchanges immediately announced operational issues, claiming that the influx of demand had forced them to shut down temporarily.
Poloniex, Bittrex, Yobit, and many more announced that they suspended DOGE withdrawals due to increased investor interest.
Binance.US, the American subsidiary of global exchange leader Binance, also announced a suspension on DOGE withdrawals. It was later discovered that the suspension was part of a larger problem with Binance, as its global exchange platform experienced operational challenges.
Coinbase joined the party soon enough, announcing that it had frozen withdrawals for several assets. The San Francisco-based exchange particularly drew criticism from several top crypto industry leaders as it has had its fair share of experiences with service outages in the past year.
Looking Ahead: Exchanges Need to Step Up
While most of them resumed normal operations soon enough, the incident provided a referendum on the crypto industry in a way that no one really thought was possible.
Think of it like this; when the GameStop saga happened, several brokerage firms - including Robinhood - announced that they would suspend trading for GameStop's stock. The decision immediately drew backlash, with everyone - from politicians to tech executives - criticizing the company for essentially siding with Wall Street against the little guy.
Exchanges essentially face a similar reckoning. Operational lags can't continue to happen, especially as the crypto industry is getting more mainstream attention. The industry is in a delicate position right now, especially with institutional adoption going up.
Tesla announced a $1.5 billion Bitcoin purchase on Monday, sending Bitcoin past $45,000 for the first time. There is every indication that more events like these in the future, further driving up the price of Bitcoin - and, by extension, other cryptocurrencies. If exchanges want to retain their position in the crypto market, operational issues like these can't continue to happen.