Is There A Point to Dogecoin Besides Demonstrating the Power of Memes?

Toby Hazlewood

What does Elon know that we don’t?

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Dogecoin on a Price chartImage from Shutterstock

I’m sure you know about Dogecoin by now.

It’s the Alt-Coin that began as a joke and as of today has a market capitalisation is $78.1 Billion. When I last wrote about Dogecoin in mid-February this year its market cap was just $8 Billion.

The astute amongst you will note a near 10x increase in a little under 3 months. It’s no wonder that those on the periphery of crypto view it skeptically — liberally throwing around the words ‘volatility’ and ‘bubble’ as though they were the first to notice.

In that story I shared my perspectives on Dogecoin as a newcomer to crypto — it seemed odd that celebrity influencers like Elon Musk and rapper Snoop Dogg held such disproportionate sway over the price of a cryptocurrency and could influence its price with a few well-timed tweets. I feared that the massive amounts of money associated with Dogecoin and similar Alt-Coins could somehow tarnish the reputation of more established and legitimate cryptocurrencies like Bitcoin and Ethereum.

Like the Bitcoin maximalists I’ve come to admire from afar, I felt inclined to look down on Dogecoin as a novelty item, a trivial annoyance — an object of fascination for its cult-following, and little more. Certainly nothing to be taken seriously.

And yet here we are two and a bit months later and Dogecoin has charged its way onwards to ever-greater highs:

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Dogecoin price chartcoindesk.com

My initial impressions remain unchanged — I still can’t bring myself to think of DOGE as much more than a figure of fun. But simultaneously and guiltily, I’m kicking myself that I didn’t buy a few Dogecoin when the price was less than a sixth of what it is today.

I’ve got a case of crypto FOMO. A bad case at that.

I’m a secret Dogecoin hodler (out of FOMO)

Confession time — a couple of weeks ago I could bear it no more.

On an idle Saturday evening while my wife and kids were watching some tedious reality TV show I decided to buy a few Dogecoins. A trivial amount of them — less than $100 worth in fact. I bought just after the first spike you can see in the chart above, in mid-April when the price was around $0.30.

Sure, I’ve notionally doubled my money based on today’s price but I can’t shake the thought that if I’d bought when I first wrote about DOGE, I’d have 10x’d my investment by now.

It seems that I’m living through an essential part of the crypto experience for those who come to invest in it; the despair, the regrets, the what-ifs and the if-onlys.

Why didn’t I buy when I first became aware of it?
What if I’d bought more of it?
If only I’d taken an interest in crypto earlier in my life — I might be rich by now.

We fret, debate and procrastinate about making an investment, fearing that we’ve missed the best of the gains or that we’ll buy at the top of the market.

When we’ve made an investment, we fret, debate and procrastinate again about whether to sell or to hold on in case we should miss out on further gains.

FOMO plays its part throughout the life of an investment, if you let it.

These sentiments aren’t the preserve of crypto investors. They apply to all investments and have done throughout time. Whether our investment of choice is stocks, property, commodities or pension funds, when times are good and markets are rising we kick ourselves for not getting involved sooner. When prices plummet, we wish we’d cashed out sooner.

If I have a strategy for Dogecoin (beyond buying it to distract myself from trash TV) it’s probably to hold onto what I have and to buy a little more from time-to-time. As much as anything else, holding DOGE is an insurance policy against one day having to regretfully look back on the time when I sold my coins for a $50 profit when they could now be worth so much more. The risk of course is that it goes into meltdown or simply ceases to exist, in which case I’ve lost my minimal stake.

Does Dogecoin suddenly have some merit?

Having trashed Dogecoin in my original piece, I don’t want to come across as a complete hypocrite. The sentiments I shared before still hold true.

There’s little doubt that Elon Musk has a disproportionate effect over the price of it through his actions on Twitter. A recent tweet teasing his forthcoming appearance on Saturday Night Live speaks volumes:

Source: Twitter

His timeline is littered with other tweets that hint at his enthusiasm for Dogecoin:

Source: Twitter

It’s not unusual for people like Musk to be able to influence markets through their actions. But he has nearly 53 million followers and the effects of such tweets seem like the most significant factor in explaining price movements of DOGE. Most would struggle to provide any other explanation for it.

My original sentiments remain the same. Most fundamentally it concerns me that events like we’re seeing with DOGE right now somehow delegitimise cryptocurrency more generally when they demonstrate that a $multi-billion asset can be manipulated so easily.

It casts a negative shadow on the similarly impressive gains that have been made by Bitcoin and Ethereum in recent months, which is down to more than an enthusiastic tweet or two from those in high places. A more widespread acceptance and adoption of Bitcoin by mainstream financial institutions is one factor that can legitimately explain how Bitcoin has gained in value (for example).

So what about the positives of Dogecoin?

Host of ‘The Breakdown’ daily podcast, Nathaniel Whittemore recently broadcast an excellent show on the rise of DOGE and presented a few of the responses received to this tweet:

Source: Twitter

I’ve cherrypicked a few of the ‘triumphs’ that struck a chord with me and paraphrased these for brevity. They’re the factors that seem to make some sense if I’m trying to see some genuine merit behind Dogecoin in its own right, and as an ‘ambassador’ for cryptocurrency as a whole.

  • It’s a gateway drug to investing in crypto — Dogecoin is like the friendly, non-threatening face of cryptocurrency that allows people to dip their toe into the space. In time they’ll educate themselves and hopefully make more educated and wise investments (Twitter user: Prayerabolic)
  • It harnesses the power of Internet Memes and converts it into something real — Human ENERGY is literally now a currency. If we can band together we can create wealth out of thin air it’s a beautiful thing. Doge showed us it’s possible without any mainstream support. (Twitter user: LATX91)
  • It demonstrates the security and resilience of blockchain technology — Dogecoin is based on code that hasn’t been maintained for 2 years, is itself a copy of a copy of 2011 Bitcoin and yet it’s still running and remains secure. It shows the extreme underlying security of the Bitcoin blockchain. (Twitter user: Nathan_Rudman)

While there were plenty of responses to the original tweet that declared Dogecoin to be a gigantic ‘F**k You’ to Bitcoin, the arguments I’ve picked out seem fairly sound and relatable.

Internet culture, memes and the disproportionate power of influencers — these are all significant and unavoidable forces in our culture today. What’s undeniably impressive about Dogecoin is that its heritage and how it has evolved are rooted in and largely attributable to these factors.

That in itself is impressive, if not comforting.

Musk isn’t just about DOGE

The final positive aspect of Dogecoin is this — while Elon Musk has fun with Dogecoin, he’s also a well known advocate of Bitcoin, investing in it privately and via Tesla which holds a significant volume of Bitcoin as part of its treasury. There must be some goodwill that comes about from this association — kind of like Musk drawing in attention to crypto as a whole (using DOGE) and demonstrating through Tesla that crypto has a genuine utility and value as a tool of decentralised finance (using Bitcoin).

I don’t think that’s too much of a leap of faith, is it?

My fears about DOGE remain

It still concerns me that as the price of Dogecoin gets pumped ever higher, as more and more froth is generated in the market and increasing numbers of investors buy it in the hope of audacious profits, it will fuel skepticism amongst crypto skeptics and the wider population. The word bubble will be used liberally and often.

If such events repeat, more and more people will begin to believe that allcrypto is meme-driven. They’ll doubt the genuine and legitimate merits of Bitcoin, Ethereum and other blockchain technologies. They’ll be handed fuel for their fire of doubt and cynicism.

Sooner or later when the price comes crashing down after making a few lucky people richer there’ll be many that get caught out and lose more than they can afford to. It may well stop its descent at a new, higher low than previously — there’s nothing to suggest it’s going away completely. But there will be some who took more of a risk than they could afford and will end up hurting financially as a result. Their stories will spread.

The same happened with WallStreetBets and GameStop. The same has happened a million other times before. But this will be another such event that’s viewed as being representative of crypto and how people get burned by it.

Finally, there’s the regulatory angle.

Cryptocurrency is autonomous and unregulated, and long may that remain. The danger of governments intervening is heightened if there start to appear large numbers of financial casualties as a result of episodes like the one involving Dogecoin at present.

If it were ever found that figures like Musk had deliberately manipulated price before selling in order to inflate their own profits then I imagine there’d be regulatory and legal backlash, particularly if it led to many small-time investors losing their shirts having been drawn in by enthusiastic tweets.

The harsh lesson is that the buyer should beware — but governments are known to intervene on behalf of private citizens when they show a repeated inability to sensibly fend for themselves.

Final thought

It feels good to have confessed, to have bared my soul. Now it’s out in the open that I own a few Dogecoin I feel a little less dirty. It doesn’t mean I’ve cheated on Bitcoin or Ethereum (or Ripple — I might have bought a few of them on that tedious Saturday night too… sorry!). My faith in them remains strong.

Getting involved with crypto investing has involved a lot of learning — not just about the technology and its history, but also about the emotional and psychological sides of investing. Dealing with FOMO and managing the distractions and hype associated with the likes of Dogecoin is a big part of that.

I’ll continue to watch with interest and as always, am reminded to only risk what I can afford to lose. Whatever coins you invest in, I encourage that you do the same (not that I’m here to give financial advice!)

Note: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.

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