Dogecoin is one of the most volatile cryptocurrencies on the market, considered by many to be among the most speculative forms of investment. In 2015, its founders, Jackson Palmer and Billy Markus, denounced the digital coin as fundamentally exploitative and essentially gave up on further developing the project. But due to a number of unexpected events, Dogecoin has recently managed to reach a market capitalization of more than 80$ billion. The CEO of Tesla, Elon Musk, has had an extensive influence on the market moves on the cryptocurrency due to the clear correlation between Musk’s tweets and the spikes in the price of Dogecoin. In this review, we will try to assess the effects of social media on the popularity of the digital asset and analyze the factors that may affect its future relevance.
The rise of Dogecoin
Dogecoin was officially launched on December 6, 2013. Its protocol was largely based on existing cryptocurrencies Luckycoin and Litecoin, with a PoW consensus model used for transaction validation. Unlike Bitcoin, Dogecoin’s supply isn’t capped, which means that it can grow indefinitely (ultimately leading to inflation). Judging by this, we can assume that the cryptocurrency was never intended to become a sustainable investment option.
Even according to its founders, the Dogecoin project started out as a joke. While their idea was to present the speculative nature of cryptocurrencies in a satirical way, Palmer and Markus did not expect to make any significant profits (or gather much attention in that sense). Unexpectedly, people from various online communities took an interest in the cryptocurrency and started sharing about it on their social media. In the first few days after its launch, the price of DOGE jumped 300%. One of the things that managed to attract initial investors was actually the logo of the cryptocurrency. Derived from the “Doge” meme, the comical outlook of the platform appealed to more than 1 million unique visitors during the first month of operation.
In the next two years, Dogecoin experienced several ups and downs, as the coin faced its first major crash and dropped in price by 80%. Three days later, millions of DOGE were stolen during a hack on the cryptocurrency wallet Dogewallet. This, on the other hand, provoked numerous tweets about the digital coin, making it briefly the second most mentioned cryptocurrency on Twitter. It also started an initiative in the Dogecoin community, named ‘SaveDogemas’, which was intended to help the people, who lost their assets in the hack. In 2014, Dogecoin briefly surpassed Bitcoin and all other cryptocurrencies at the time in trading volume.
After Palmer left the cryptocurrency industry in early 2015, Dogecoin remained almost static for the next 2 years. In the crypto boom of 2017, its price rapidly increased by around 1000%, reaching a market cap of 2 billion dollars. In July last year, creators from the platform TikTok started a new trend, trying to get the coin’s price to $1. This helped Dogecoin stay afloat among the unstable market and even double in price in less than a month.
The third big leap for Dogecoin happened in January 2021, when users of Reddit started an initiative to send the cryptocurrency “to the moon” and reach the threshold of $1 per coin. Redditors from the subreddit SatoshiStreetBets started mass posting about the cryptocurrency, partially encouraged by Elon Musk’s tweets. Dogecoin went up 800% in 24 hours, reaching a price of $0,07. After some more tweets from Tesla’s CEO, Snoop Dogg, and Gene Simmons, it hit a new time high of $0,08. A few days into the cryptocurrency boom of April, the value of DOGE went up to $0,45, and on May 4, surpassed the symbolic threshold of $0,50.
When searching for long-term investment opportunities in the cryptocurrency sector, we must first look at the value that particular assets can provide. Most often, value is measured through utility, which in the case of Dogecoin, is non-existent. We can support this statement with a few simple facts.
First of all, Dogecoin does not have a mechanism to hedge against inflation due to the lack of a fixed issuance schedule and a supply cap. This means that as more DOGE is mined over time, the value of each coin will slowly deteriorate. Secondly, the digital coin does not offer smart contracts infrastructure or any other functionality that might help it scale in the future. While Dogecoin was originally intended as a payment option, it has never been widely recognized as such throughout the sector. Currently, no expert developers are working on potential upgrades to its blockchain. Moreover, there are no financial institutions that have expressed their intention to invest in Dogecoin. Due to its speculative nature, major funds and banks deem it unreliable and avoid it.
How Elon Musk influenced the growth of Dogecoin
At present, Elon Musk has nearly 60 million followers on Twitter. His consistency in posting about cryptocurrency, albeit jokingly, has had an enormous impact on the whole market. Moreover, the entrepreneur seems to have an extremely strong influence over Dogecoin. On April 14th 2021, he tweeted an abstract painting from Spanish artist Joan Miró with the caption “Doge Barking at the Moon.”, which skyrocketed the price of Dogecoin from $0,06 to $0,18, a new high at the time.
The influence of public figures over cryptocurrency is reflected mostly in the social conversations that they start on their respected platforms. New data shows that Elon Musk’s Twitter statements about Bitcoin result in an astonishing 44% increase in the number of tweets about the cryptocurrency. The same is relevant for Dogecoin. While those spikes are just temporal, a large number of holders still believe that the asset will continue growing in price.
What does the future hold for Dogecoin?
Dogecoin’s high volatility stems solely from the interest that various social communities have in keeping it relevant. The cryptocurrency is not adopted as a mainstream payment method and does not provide any real value due to its lack of extensive functionality. Dogecoin is currently reliant on whether Musk and other popular influencers will decide to talk about it. This makes it one of the most speculative assets in the crypto market and is an indication that it isn’t a sustainable long-term investment option. As Musk is known to be a highly controversial person, he can very well face legal repercussions, if the authorities deem his online activity as market manipulation. While we can expect another drastic change in the price of Dogecoin if Elon decides to tweet about it, when and how will that happen remains completely unpredictable. Not to mention that Elon’s latest tweets have had a negligible effect on the market compared to his first few mentions of Bitcoin and Dogecoin. Despite all the support that it gets from various social platforms and influencers, Dogecoin remains one of the most volatile and dubious digital assets on the market. If you are looking to make a sensible cryptocurrency investment, you might first want to check out some of your other options.
Nothing on this website should be perceived as financial, investment or trading advice. We urge you to do your own research prior to investing and we highly recommend that you consult a certified financial advisor.
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