What’s With All The Hype Around Dogecoin?
Bitcoin is to cryptocurrency what Kleenex is to facial tissues. It has become the eponymous standard for cryptocurrency. But another star, Dogecoin, is rising. Ironically, Dogecoin began as a joke.
A Joke That Backfired, In A Good Way
A 2010 uploaded picture of Kabosu, a Shiba Inu dog raising her eyebrows, became the inspiration for the Doge meme that rose in popularity in December 2013. The picture was usually overwritten with colorful Comic Sans text. In broken English, the intention was the text represented the dog’s internal monologue in a given situation.
Riding that popularity, software engineers Jackson Palmer and Billy Markus created Dogecoin as a joke. Palmer and Markus billed it as a “fun and friendly” alternative to Bitcoin. But the joke was somewhat on them when online communities responded in a big way. In 2021, this “joke” skyrocketed to a worth of $40 billion.
Do You Want To Be A Millionaire?
Cryptocurrencies are no stranger to volatile fluctuations. Along with other digital currencies, Dogecoin’s price rose in 2018. It soon plateaued and mostly remained in the background.
In early 2021, however, a Reddit group called SatoshiStreetBets, the “Crypto version of WallStreetBets,” began pumping up cryptocurrencies, including Dogecoin. This action resulted in a skyrocketed climb for Dogecoin, rising 400% in just a week.
Attributing to the rally is the public listing of the United States’ most popular virtual currency exchange, Coinbase. The exchange hit a historic $100 billion market cap that same week. Correspondingly, popular cryptocurrencies’ prices surged.
Redditors on the SatoshiStreetBets subreddit have been posting about their investment holding increases. One Redditor posted a picture of his Robinhood investing dashboard showing he was now a Dogecoin millionaire.
Inflating The Balloon
Robinhood users are fans of Dogecoin. Their “unprecedented demand” for the cryptocurrency temporarily crashed the trading feature of the Robinhood service in April 2021. Positive tweets by Tesla CEO Elon Musk are reportedly a driving force behind Dogecoin’s increasing popularity and pricing uptick. Musk referred to it as his favorite cryptocurrency. However, he’s also supported Bitcoin with a $1.5 billion purchase by Tesla in early 2021.
Some investors are concerned with the ability of tweets to move the markets. Federal Reserve Chairman Jerome Powell called cryptocurrency “vehicles for speculation” because they are “not being actively used as payments”. Powell compared cryptocurrency to the artificial inflation of gold value.
I Hate To Burst Your Bubble
This suggestion of artificial valuation, coupled with the meteoric price rise, worries some investors. Because cryptocurrency doesn’t have meaningful value, experts question whether the bubble will burst.
Also, privacy is a double-edged sword with cryptocurrencies. The advantage is that transferred funds avoid a third-party financial institution. The use of private and public keys transfers the funds directly with lower fees. A disadvantage is some cryptocurrencies provide the means for illegal activities that are difficult to trace.
Multiple government officials have expressed concern with cryptocurrency and possible ties to terrorism. The government’s increasing negative perceptions could lead to stiffer regulations of cryptocurrencies or even result in complete devaluation.
Conversely, fiat currency—money the government issues that the government values—is often seen as devalued already due to the lack of tangible assets backing it. Bitcoin advertises itself as a “decentralized peer-to-peer payment network,” a view Dogecoin shares.
While the FDIC does not protect cryptocurrencies, neither are these currencies part of the government system. As a result, if the cryptocurrency bubble doesn’t burst, the peer-to-peer payments could continue unabated by financial crises affecting traditional banks.
Prospective buyers of any cryptocurrency should weigh the potential risks. They should also consider the possibility that it might replace, or at least marginally supersede, traditional currency in the distant future as more people become disillusioned by high banking fees and how traditional currency impacts a national economy, for better or worse.