Dogecoin goes “to the moon” – what’s going on?
Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an internet “meme” has taken off so spectacularly.
Dogecoin is a cryptocurrency, just like bitcoin. Unlike bitcoin, it was launched as a joke. That was back in 2013. On Friday, it almost doubled – in a day. Today it has hit an all-time high of $0.43. All told, it has risen by more than 9,000% since the start of this year. Bitcoin has “only” doubled. What on earth is going on?
Dogecoin was created by software engineers Jackson Palmer and Billy Markus. It’s based on a popular internet “meme” which features a cute picture of a Japanese breed of dog – the Shiba Inu. As Markus (who left the dogecoin project in 2015) reiterated in a tweet at the weekend, “dogecoin started as a parody” of the crypto sector.
Yet today dogecoin is deemed far more valuable than many other “serious” crypto projects. It currently boasts a “market cap” of more than $50bn (clearly this will have fluctuated by the time you read this) which makes it the fifth-largest cryptocurrency by this measure, according to industry website CoinMarketCap.
So what began as little more than an internet sensation, now regularly ranks as a top ten cryptocurrency by market capitalisation.
How a joke cryptocurrency took off
Why has it taken off? Dogecoin’s most recent surge has coincided with the euphoria around last week’s public listing of America’s largest cryptocurrency exchange Coinbase. As such a number of cryptocurrencies including bitcoin, hit fresh records highs.
But dogecoin has also attracted a number of high-profile endorsements. The world’s richest man, Tesla founder Elon Musk has been following the coin for some time. In February it shot up after he tweeted that “Dogecoin is the people’s crypto”.
Last week, he tweeted an image of Spanish artist Joan Miro’s painting, “Dog Barking at the Moon”, with the caption “Doge barking at the Moon”. Dogecoin, which was already having a stellar week, rose 50% on the day Musk tweeted the picture.
Meanwhile, billionaire Mark Cuban and American rapper Snoop Dogg have also spoken in favour of the digital token.
Doge has also been targeted by a Reddit group called SatoshiStreetBets, similarly to the WallStreetBets group which pushed “meme” stocks such as video games retailer GameStop higher at the start of this year.
What’s the difference between dogecoin and bitcoin?
Dogecoin is similar to bitcoin in that it’s a digital medium of exchange. Lots of other cryptocurrencies have other uses – ether, the second-biggest crypto, is used in “smart contracts” on the ethereum blockchain, for example. But dogecoin is basically just meant to be digital money.
However, unlike bitcoin, the supply of dogecoin is not fixed, and it inflates at a faster rate. Technically, that should mean it’s less valuable than bitcoin, but it also means that it’s easier to “mine”, which in turn may have contributed to its recent rise.
As BitDegree, an online crypto education platform, puts it: “Dogecoin mining difficulty is more than one million times less than Bitcoin mining difficulty. This means you are much more likely to win the block reward when you mine Dogecoin.”
While both bitcoin and dogecoin use “proof of work” – the most popular method to agree how transactions (blocks) are added to the blockchain – dogecoin has a block time of one minute, and the total supply is unlimited. Under bitcoin, the block time is ten minutes with a supply of 21 million coins which reduces over time.
The reward under dogecoin may also be an incentive for miners to mine the cryptocurrency over others. Mining one block of dogecoin – which can be done solo or in a mining pool – fetches 10,000 dogecoins. For bitcoin the reward is currently 6.25 bitcoins for each block mined.
So even though the supply is increasing more rapidly, the relative ease of mining means that the currency has remained in the public eye.
Dogecoin is in a bubble waiting to burst
So with all that in mind, what’s next for dogecoin? Is this something to put your money in, or is it just another bubble waiting to pop?
“Dogecoin’s rise is a classic example of greater fool theory at play, Dogecoin investors are basically betting they’ll be able to cash out by selling to the next person wanting to invest”, says David Kimberly, an analyst at financial technology company Freetrade. And it’s very hard to disagree with him.
Investors – or, rather, speculators –may be tempted by its very low price per coin (compared to ether and bitcoin) which may act as an incentive to enter cheaply and invest. The problem with dogecoin is that there is absolutely no credible reason to explain its surge apart from general sentiment and a few flashy endorsements.
And investors should remember that wild moves in the cryptocurrency market are not that unusual, even though the scale of dogecoin’s gains has been quite extraordinary. We saw that with bitcoin this weekend – after it hit a fresh record last week, it fell by as much as 15% on Sunday alone, and rival coins such as ether and ripple also fell.
So dogecoin could be a fun bet, but as Kimberly warns, when everyone is buying something just to boost its price and get rich quick, it only takes one “to dump all their holdings for the entire market to tank”.
Perhaps it’s best to leave the last word to Markus, who when asked by Bloomberg what was going on in February this year, replied: “Maybe it’s that dogecoin can be a good barometer for how far from reality things can get.”