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With all the talk about Dogecoin, you have probably heard that this cryptocurrency started out as a joke. However, recent price developments have shown that people are taking it a lot more seriously than its own founders did in 2013. So, is Dogecoin more than just a parody and why does Elon Musk tweet about it all the time? Can it truly be considered a valuable asset? Let’s take a closer look at one of the most discussed cryptocurrencies.
A quick history of Dogecoin
Initially developed by tech workers Billy Marcus and Jackson Palmer, Dogecoin started as a fun project based on a famous Shiba Inu meme during the first wave of the Bitcoin hype in Silicon Valley. What started as a joke soon turned into a real cryptocurrency that was based on Bitcoin’s (or actually, Litecoin’s and Luckycoin’s) code. Dogecoin experienced price surges of up to 300% within the first weeks of trading, but was also the target of a hack. Despite early growing pains, Dogecoin managed to stay around and garnered a small (compared to Bitcoin) but loyal following. While Bitcoin has attracted attention from both retail and institutional investors over the years, Dogecoin maintained its “underdog” position.
More recently though, Dogecoin profited from the rising popularity of digital assets in general. In July 2020, TikTok users set out to push Dogecoin to $1. It didn’t quite hit the mark but the price was up 1,900%. In the following months, Dogecoin attracted the attention of the so-called Robinhood generation of traders who frequently discuss their trading bets on Reddit. Simultaneously, celebrities and business people such as Snoop Dogg and Elon Musk started pushing Dogecoin on their social media accounts.
Trying to make sense of the recent Dogecoin hype is impossible, but the meme asset is riding a new crypto wave that also consists of NFTs and sports tokens. Both fan tokens and NFTs are at the forefront of blockchain technology reaching a mass market and mainstream audience. What makes Dogecoin so attractive is that compared to bigger currencies like BTC and ETH, its price seems a lot more accessible, especially to newbie investors. This factor paired with Dogecoin’s popularity among celebrities and internet communities has helped boost its growth.
Is Dogecoin an alternative to Bitcoin?
This brings us to today: Dogecoin still hasn’t reached $1, however, at the end of April, the price is up by more than 10,000% (yes, you read that right) than a year ago and its market cap is at more than $35 billion. Now that you've read these numbers, you might overthink whether Dogecoin is really just a meme.
Due to the increasing popularity of crypto in general and Elon Musk’s focus on both Bitcoin and Dogecoin, the two assets are often compared. One major difference between Dogecoin and Bitcoin is that Dogecoin’s supply is not limited. Bitcoin has been designed with limited supply, no more than 21 million bitcoins can ever be produced. Dogecoin on the other hand, was initially designed with a limit of 100 billion coins, but that cap was removed shortly after its launch. By default, Bitcoin’s demand will most likely always be higher than its supply, which could potentially push the price up steadily over the coming years and decades. The fact that Dogecoin has an unlimited supply could in turn lead to a decline in price over time. That doesn’t mean that Dogecoin will eventually crash, it could of course still go up – but it’s definitely a fact to consider when thinking about holding Dogecoin long term.
How do the Dogecoin founders feel about the hype?
Another aspect to consider is who is running Dogecoin. One of its founders, Jackson Palmer, left Dogecoin two years after its launch and has become a loud critic of the Dogecoin hype and cryptocurrencies in general. In a 2018 opinion piece, Palmer compared the crypto craze with penny stock trading: “It’s great to see mainstream excitement about cryptocurrency, but the continued focus on price and potential to “get rich quick” distracts from the laudable goals that projects like Bitcoin set out with.”
Co-founder, Billy Markus, has remained active in the Dogecoin community and recently pledged that Dogecoin should be a force for good: “Keep educating yourself as much as you can on how cryptocurrency works, how these markets work, never risk more than you could safely lose, be vigilant and aware.”
You might also be wondering if you can actually use Dogecoin for something. The currency prides itself as a useful tool for micropayments. More recently, US online retailers have started accepting Dogecoin as a payment method.
So is Dogecoin more than a joke?
One more thing to keep in mind is that beyond its grassroots beginnings, Dogecoin’s success in the past year was most likely not a coincidence. When well-known people with huge followings push a product or asset, one can assume that they’re not doing it out of charity but more out of self-interest. A recent study also suggests that five wallets control 40% of Dogecoin’s overall supply.
When you look for reasons why Elon Musk is pushing Dogecoin, the answer is probably somewhere between “because he enjoys trolling” and “because he doesn’t like the US financial authority”. It’s interesting to see this coming from one of the richest people in the world and who happens to know how to go viral on social media every other day. But you should still be very careful when you follow short-term hypes that are based on something like this. So the super important basic rule of “don’t invest more than you can afford to lose” applies here more than ever.
So is Dogecoin more than a joke? Probably, yes. However, right now it’s also a trading meme comparable to Gamestop and while it feels that retail investors are in control, there are probably bigger forces driving the price in the background. Whether you hold Dogecoin in your wallet for a long time or not depends on how you feel about the aforementioned aspects. If you want to buy or sell Dogecoin, head on over to Bitpanda.
The information contained in this article is for general purposes of information only and is not investment advice in any form. It’s important to note that while Dogecoin (DOGE) passed our internal quality checks, you should be aware that the current market volatility involves more risk than usual. Please be aware of the risks involved.