Digital currencies have started to dominate the financial news cycle in recent years. However, while the vast majority of investors and media reports talk about Bitcoin, other cryptocurrencies have also gained traction and popularity.
Dogecoin is one such cryptocurrency that has delivered staggering returns but has also found itself amidst controversy of late. So what is Dogecoin, and why is the internet so divided on it?
What Even Is Dogecoin?
Dogecoin started its life in late 2013 as a satirical and fun equivalent to existing cryptocurrencies such as Bitcoin. It was named after the then-popular ‘Doge’ meme involving pictures of a perplexed Japanese dog.
Dogecoin’s founding goal was to advertise digital currencies’ virtues, which it sought to achieve by showcasing itself as approachable and uncontroversial. For these reasons, the dog’s face from the meme was immortalized as Dogecoin’s official logo. The project also featured the playful Comic Sans typeface throughout its website.
Even though it was meant to be a joke, Dogecoin’s creators made sure that it was at least usable as any other cryptocurrency. To that end, they based the token’s foundations on the Litecoin blockchain—which is itself a slightly modified version of Bitcoin.
Dogecoin: A Thriving Community With a History of Philanthropy
A week after its release in December 2013, Dogecoin saw its price jump by nearly 300 percent. The cryptocurrency also recorded over a billion dollars worth of trading volume in the same time frame. Within the first month of its release, Dogecoin’s official website had been visited over a million times.
In its early days, Dogecoin successfully branded itself as a fun and community-focused cryptocurrency. From sponsoring a NASCAR driver in 2014 to building wells in Africa, the community boasts a rich history of philanthropy.
For several years, Dogecoin was predominantly used to tip other users on social media websites such as Reddit and Twitter. Another set of users also used the token in exchange for tangible goods and services.
In 2014, a 27-year-old entrepreneur offered his Wisconsin vacation home in exchange for Dogecoin after receiving no compelling offers for several months. He listed the property for 100 million Dogecoins, valued at approximately $135,000 at the time. That same year, a group of Dogecoin users banded together to donate 27 million Dogecoins to sponsor the Jamaican bobsled team’s travel to the Winter Olympics in Sochi, Russia.
Unfortunately, the Dogecoin community’s early charm has mostly wilted away these days—with many holders looking at it as a get-rich-quick scheme. It doesn’t help that Dogecoin’s rise in popularity coincided with the GameStop short squeeze—an event that rewarded inexperienced traders with atypical and unrealistic returns.
Dogecoin: Can Infinite Supply Hold It Back?
Unlike mainstream cryptocurrencies such as Bitcoin, Dogecoin was never meant to attain critical mass. For evidence of this, look no further than the inflationary nature of Dogecoin’s token supply.
Each year, approximately 5 billion new DOGE tokens enter circulation. Similar to the US dollar and most other fiat currencies, an increase in supply reduces the purchasing power of existing tokens.
Dogecoin’s increasing supply puts the token at odds with most other digital currencies. Bitcoin, for instance, has a fixed supply of 21 billion coins. Scarcity over time has driven Bitcoin’s price up, thanks to the effects of supply and demand.
Proponents of the broader cryptocurrency movement argue that Dogecoin’s fundamentals do not warrant continuous increases in its valuation. The smaller Dogecoin community, meanwhile, claims that the inflation rate is low and equivalent to fiat currencies. Ultimately, they steadfastly believe that Dogecoin could become the “currency of the internet.”
Like many other digital currencies, Dogecoin found considerable price momentum during the 2017 market rally. By January 7, 2018, the cryptocurrency had reached a market cap of $2 billion.
For a few years following that milestone, Dogecoin’s valuation stayed relatively stagnant. Then, in 2020, its price began soaring once again. In the past, Dogecoin’s rallies have been fueled almost entirely by online memes and jokes. However, this time, Elon Musk and a handful of other noteworthy personalities took a newfound interest in the token.
At the start of 2020, each token traded at approximately $0.002. By January 29, 2021, the token had reached an all-time high of $0.08—representing a 4,000% gain over 13 months. The buying frenzy even brought the token to the list of top 10 cryptocurrencies by market capitalization.
Dogecoin and the Elon Musk Effect
In July 2020, Musk took to Twitter to claim that ‘the Dogecoin standard’ would inevitably take over the global financial system. This single statement was enough to send Dogecoin’s price up by 14%. With over 47 million followers on Twitter, Musk likely introduced millions of individuals to the cryptocurrency market for the very first time.
It took several months for Musk to reference Dogecoin again. By the time he did, though, the cryptocurrency market had found itself in the midst of yet another bull run. On December 20, 2020, Musk tweeted, “One word: DOGE”. Only a few hours later, the token saw its valuation spike by at least 20%. Around the same time, Bitcoin surpassed its 2017 all-time high price of $20,000.
Throughout January 2021, Elon Musk relentlessly evangelized Dogecoin on Twitter. While he later backpedaled by saying that most of his remarks were made in jest, Dogecoin’s valuation continued to rise. In that very same interview, Musk also said,
“The most ironic outcome would be that dogecoin becomes the currency of Earth in the future.”
By February 6, Elon Musk began posting full-blown cryptocurrency instructional videos on Twitter. At one point, Musk even garnered the support of celebrities and billionaire investors. Mark Cuban, for instance, chimed in to say that he would be willing to pick Dogecoin over a lottery ticket.
Needless to say, though, memes and jokes are not enough to guarantee the long-term success of a financial asset. Given that Dogecoin is not a listed stock and largely unregulated, its price can be easily manipulated by those holding a significant stake.
Elon Musk perhaps recognizes this threat to some extent. On February 15, he tweeted that he would personally pay off ‘major Dogecoin holders’ if they sold most of their coins. Musk also floated the idea of them voluntarily voiding their wallets—stating that the concentration of token ownership was ‘the real issue.’
If major Dogecoin holders sell most of their coins, it will get my full support. Too much concentration is the only real issue imo.
— Elon Musk (@elonmusk) February 14, 2021
What’s Next for Dogecoin?
At the time of writing this article, Dogecoin’s price continues to swing in wildly opposite directions every day—even in the absence of statements from Musk. Speculative trading is likely the reason for this volatility, as well as a cultural shift within the Dogecoin community. For the cryptocurrency’s creator, Billy Markus, this is a worrying trend.
In an open letter published February 9, 2021, Markus said,
“People are talking about Dogecoin going to $1 – that would make the ‘market cap’ larger than actual companies that provide services to millions, such as Boeing, Starbucks, American Express, IBM. Does Dogecoin deserve that? That is not something I can comprehend, let alone answer.”
Billy Markus somberly concluded his letter by stating that he wishes for the cryptocurrency to be a force for good, or at the very least, a source of positivity and amusement.
While Markus’ letter was upvoted over 27,600 times on Reddit, it failed to garner nearly as much popularity as Elon Musk’s tweets on Dogecoin. Ultimately, it seems as if the Dogecoin community has changed considerably since its early days. Only time will tell if Dogecoin’s current $5 to $10 billion market cap is sustainable or not.