Hot off the heels of the Reddit–fueled GameStop stock surge comes a new investing craze by the name of “Dogecoin.” This latest fad in cryptocurrency recently shot up several orders of magnitude, from trading at fractions of a cent to several cents per share, with a total valuation exceeding $10 billion. So far, it has risen over 1500% in price. As with the GameStop rally — entirely driven by publicity rather than any real, underlying value — Dogecoin’s surge was driven by a bevy of internet memes, rocket emojis, and Elon Musk tweets.
Earlier this February, Dogecoin’s valuation began to rise, immediately jumping 30% in reaction to SpaceX and Tesla CEO Elon Musk and rapper Snoop Dog tweeting about the cryptocurrency.
Elon Musk first tweeted about the satirical currency on February 4th, writing “Dogecoin is the people’s crypto.” The billionaire tech CEO later shared a video promoting Dogecoin, in addition to a collection of memes.
Ð is for Ðogecoin! Instructional video.https://t.co/UEEocOfcTb
— Elon Musk (@elonmusk) February 8, 2021
Shortly after, rapper Snoop Dogg joined in, promoting Dogecoin on his own timeline
— Snoop Dogg (@SnoopDogg) February 6, 2021
A brief primer on cryptocurrencies:
The most ubiquitous and widely known cryptocurrency today is Bitcoin. Conceived in 2009, Bitcoin, like all other cryptocurrencies, is a decentralized, digital currency; only existing electronically. Unlike the US Dollar, or any other Fiat currency, Bitcoin isn’t bound to a central bank or government. This means that there is no governing body — like the Federal Reserve — keeping track of how many are already in circulation, deciding how many should be in circulation, or deciding to print (create) more Bitcoins.
Bitcoins, unlike the myriad of files you have saved on your computer, can’t be copied. A bitcoin isn’t a binary string saved locally on your computer. It is an entry on a dynamically growing global ledger called Blockchain.
The Blockchain ledger records every Bitcoin transaction that has ever happened. As of February 2021, the Bitcoin Blockchain has reached a whopping 330 GB. Because Blockchain is decentralized there isn’t a single, universal ledger, but multiple ledgers; and they all keep track of the same information. Each Bitcoin transaction broadcasts to the network of ledgers information regarding the account numbers associated with the transaction and the number of bitcoins being exchanged.
All of this is made possible thanks to cryptography – where cryptocurrency gets its namesake. When someone creates an account on the Bitcoin network, called a “wallet,” it is associated with a private and public key. This is the sort of encryption that governs nearly all security on the web.
Other cryptocurrencies, aside from Bitcoin, are variations on the same technology: blockchain. These are called “altcoins.” Although the underlying technology is the same, their “rules” vary slightly. For example, some altcoins can be “mined” (produced) at faster rates than Bitcoin. Some altcoins have higher circulation limitations. And for some altcoins, the hardware requirements to produce them are far laxer than the vastly expensive supercomputers needed for Bitcoin. Almost anyone can make their own altcoin. There are, therefore, an overwhelming number of different altcoins in circulation: Ethereum Tether, Litecoin — and you can see them all in Coinbase. While some do offer more appealing features and a lower price when compared to the ubiquitous Bitcoin, they can be highly volatile and unpredictable.
This brings us to the latest headline-making altcoin: Dogecoin. Dogecoin was started as a joke, in 2013, via a sardonic tweet by a then-Adobe employee, Jackson Palmer. Poking fun at the deluge of altcoins flooding the cryptocurrency market, Palmer wryly remarked, “Investing in Dogecoin, pretty sure it’s the next big thing.”
The joke caught on and spread. Before long, Palmer was contacted by Billy Marcus, a software engineer from IBM. In collaboration, the pair launched Dogecoin in December of 2013 with a Shiba Inu as its mascot. Two weeks later, the value jumped 300%, buoyed by both viral press, and China’s hardline ban on Bitcoin trading.
Recollecting the ironic inception of his digital currency, Palmer explained in a Vice interview, “One night after work, I sat down with a beer, I had too much time on my hands, and I bought Dogecoin.com. Then I Photoshopped the logo onto the coin and put it up there.”
Despite its flippant origins, Dogecoin continued to steadily grow. In 2014, Dogecoin’s trading volume surpassed all other digital currencies — even Bitcoin’s. In 2018, Robinhood allowed trading of Dogecoin on its platform. A decision they later reneged on: in late January, amid an 800% surge in demand, Robinhood shut down instant deposits for all cryptocurrency trading, while also restricting trades of a slew of surging stocks, including GameStop.
Dogecoin was then thrust even further into the spotlight when Tesla CEO Elon Musk tweeted about the currency, sending its trading value soaring. Today, Dogecoin has a market cap of close to $10 billion — roughly the same market value as Dropbox and Pinterest.
Does investing in Dogecoin make any sense? Does it really have any intrinsic value?
A crucial fact to consider about cryptocurrency, as mentioned earlier, is that different digital currencies are bound to different rules. Bitcoin, for example, is limited to exactly 21 million coins. As of today, 18.5 million Bitcoins have already been mined; it is expected that by 2040, the available supply of Bitcoins will be exhausted, hence encouraging hoarding of the digital coin, driving up the price. Dogecoin, conversely, has no limit to the number of coins that can be mined, produced and circulated. There are currently over 128 billion Dogecoins in supply — and rising. Each year, the number of Dogecoins in circulation is expected to increase by 5 billion per year — setting the annual inflation rate at around 4%.
According to a recent report in the Wall Street Journal, a single entity owns 28% of all Dogecoins currently in circulation. And as further revealed by blockchain data, the top 20 Dogecoin holders preside over 50% of the supply — 20 entities hold over 5 billion dollars of the cryptocurrency.
The currency’s cofounder, Jackson Palmer, who left the project in 2015, has since said, “With no immediate plans for development, it looks like the coin will slowly become stagnant in the future. The circulating supply of Dogecoin is astronomical, which will deter the price of the cryptocurrency from rising any further.”
Meanwhile Billy Marcus, technical brawn behind Dogecoin, told the Wall Street Journal in an interview, “The idea of dogecoin being worth 8 cents as the same as GameStop being worth $325. It doesn’t make sense. It’s super absurd. The coin design was absurd.”
As far as its legitimacy as an investment is concerned, Dogecoin’s entire value is attributed to the hype surrounding it. Its value ebbs and flows according to the number of times Elon Musk tweets about it, and the amount of money other people are willing to put down just to partake in a meme. Much like the GameStop craze that preceded it, Dogecoin’s value is not based on anything tangible, but merely the attention it garners.
In his same interview with Vice, Palmer left an optimistic outlook on his accidental creation, citing its caustic origins as, for many people, a beguiling steppingstone into the intimidating and foreign world of digital currencies,
“Cryptocurrency has a lot of growing to do, and it also has a lot of stabilizing to do… If all we’ve done with Dogecoin at the end of the day is grow awareness in a decentralized currency such as Bitcoin, then I think we’ve done a good job, because for a lot of the people who are using Doge now, it’s their first cryptocurrency that they’ve ever used, and they’ve started mining. They’re learning, and I think it’s great that people actually want to learn about it because it’s associated with this doge meme.”
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The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.