Unless you live under a rock or are part of the uncontacted tribes of the Congo or the Amazon you’ve probably heard of Dogecoin. For the last few months the crypto has been on everybody’s lips, spreading mostly via memes on social media. Starting out as a joke it is now rallying hard to a market cap of just below $40 billion as per Friday last week. This is higher than asset management giant T. Rowe Price. What’s more this was a slight dip from the $53.98 billion high it achieved on Monday.
Dogecoin was never meant to gain such a notoriety as a reliable crypto. Pat White, CEO of Bitwave said it “…was really started to poke fun at Bitcoin.” Today however its far from just being a joke having gained more than 5000% in value in 2021. But what makes it so popular?
The Meme Currency
Dogecoin was created in 2013 by software engineers Jackson Palmer and Billy Markus. Their goal was to “ create a payment system that is free from traditional banking fees.” However, for a number of years it remained on the backpages of the crypto world along with hundreds of others created in the last few years. It was only earlier this year that the coin gained popularity in the Reddit space WallStreetBets, the same group responsible for instigating the Gamestop fiasco. There enthusiasts conspired to “..propel it to the moon” and that they did, sort of.
Along with tech mogul Elon Musk and a few other celebrities such as Snoop Dogg, dogecoin has been propelled to an online phenomenon. This is perhaps for the same reason experts mock it today, “it started out as a joke.” And we all know all too well how serious social media takes their jokes.
Elon Musk especially has been instrumental in driving the hype behind Dogecoin. Many of his twitter posts this year have been committed to expressing his “love” for the cryptocurrency. He even went as far as promising to put a physical dogecoin token on the moon.
SpaceX is going to put a literal Dogecoin on the literal moon— Elon Musk (@elonmusk) April 1, 2021
Beyond the Hype
But beyond the memes and the tweets is their any value in Dogecoin? Many cryptocurrency experts seem to think not. And perhaps the bigger question is whether there is any value behind any cryptocurrency.
What makes a currency valuable is a rather abstract concept. Coindesk writer Michael J Casey explains “..Currencies do not have a core, intrinsic value…..A currency’s value is dependent on shared belief in that value….. But without belief, all money is worthless.”
Whether Dogecoin can achieve this level of shared belief so as to be truly valuable remains to be seen. The more pertinent issue lies in the fact that there is no lifetime cap on the number of Dogecoins that can be mined. This means that the coin is highly inflationary by design. Bitcoin on the other hand does have a cap at 21 million. This is the maximum number of Bitcoins that can be mined.
Also, its much easier to mine Dogecoin than to mine Bitcoins. “Where it takes 10 minutes for the process to ratify new blocks on the Bitcoin blockchain, it takes only one minute on the Dogecoin blockchain,” said Gary DeWaal, Chair of Katten’s Financial Markets and Regulation group. While this makes Dogecoin easier for payments it also exacerbates its inflationary property. This makes it a bad store of value.
Should you invest in/buy Dogecoin?
Dogecoin has increased almost 50-fold in value over the last few months and those who invested in it have reaped big. However, it is highly unlikely that it will continue to gain value at such rates. This again is because it lacks a lifetime cap on the number of coins that can be mined. Thus, even if the existing coins continue to gain value new coins will water down their value such that Dogecoin will never become as valuable as Bitcoin.
In short Dogecoin will likely continue to gain value in the short term but its design makes it a bad bet for a long-term investment.