Dogecoin, the cryptocurrency branded years ago after a viral dog meme, hit a new all-time high on Friday afternoon. After growing more than 26,000 percent for six months, the company now has a market capitalization of approximately $ 92 billion.
Over the same period, the S&P rose 19 percent, while crypto rivals Bitcoin and Ether rose 286 percent and 698 percent, respectively, according to CoinMarketCap. And Tesla, a treasure trove? It’s up 56 percent since November.
“The joke is on Wall Street this time,” said Mati Greenspan, portfolio manager and founder of Quantum Economics. “What you have is a situation where teenagers on TikTok outperform even the smartest suits by thousands of percentage points.”
In 2013, software engineers Billy Markus and Jackson Palmer introduced the satirical cryptocurrency to poke fun at Bitcoin and the many other cryptocurrencies that have big plans to take over the world.
They named it Dogecoin – pronounced “Doje Coin” with a soft “g” sound – after the once popular “Doge” Shiba Inu meme. His task? Be a faster but “fun” alternative to Bitcoin.
“The appeal of Dogecoin has always been its honesty,” said Galaxy researchers Alex Thorn and Karim Helmy in a message to customers around the world on May 4th. “
While Bitcoin has a limited supply of 21 million coins, there is currently no limit to the number of Dogecoins that can be created.
“One of Bitcoin’s value propositions is digital scarcity that there will only be 21 million,” Greenspan said. “There is no such thing as a hard cap [with dogecoin]and it has a really insane inflation plan. “
The Elon Musk Effect
It’s not entirely clear when or why Dogecoin captured the heart of Elon Musk.
Billionaire Tesla and the SpaceX CEO have been talking about the token for years.
Musk’s tweets with sometimes weird references to Dogecoin often send it at new record prices. These posts have also helped generate interest from retail investors.
“They have this one guy who is similar to the cult leader,” said Asheesh Birla, general manager at Ripple, which manages an alternative cryptocurrency that is used for payments.
Musk is not alone in his prominent support for the pet brand token, however. Dallas Mavericks owner Mark Cuban, Snoop Dogg and Kiss bassist Gene Simmons have gathered publicly behind Dogecoin. Even the jerky beef brand Slim Jim is taking part.
This week’s price hike, attributed by an analyst to Elon Musk’s upcoming Saturday Night Live appearance on May 8, even briefly crashed Robinhood’s trading app.
However, dogecoin’s record price offers more than just celebrity support.
The market conditions were also right. Several rounds of stimulus checks have resulted in people having more money to spend. Apps like Robinhood have made it easier than ever for casual investors to bet on stocks and have made day trading a pandemic pastime.
There is also a lingering feeling of “sticking” to the establishment.
“Dogecoin is like a big FU to the system,” said Avi Felman, Head of Trading at BlockTower Capital. “It’s like, ‘Yes, this thing can have value too. And I’ll just buy it because I’m going to buy it.'”
Experts say the dynamic is reminiscent of the GameStop trading frenzy from earlier this year.
“Elon is basically expressing the message, ‘Why can’t Dogecoin have any value?’” Felman said. “It’s part of the GameStop boom. People like these tales. They like these stories. They like these jokes. And Dogecoin has simply captured the minds and imaginations of every individual retail investor.”
The rise of commission-free trading via online brokerage apps like Robinhood also made it easier than ever to buy into crypto.
“They have a rabid online community,” Birla said of the Doge Evangelist fan base. “They have Twitter and Reddit where they all gather and think about how to pump Dogecoin.”
Appreciation of Dogecoin
The question of whether Dogecoin has any value is controversial.
There are currently very few use cases for the token. Although more and more merchants are starting to accept Dogecoin as a payment method, it is nowhere near where it can be used as an actual currency substitute.
“Everything is a big marketing ploy these days,” said Mike Bucella, general partner of BlockTower Capital.
Unlike competing cryptocurrencies like Ethereum, which programmers can use to create applications on their platform, for example to borrow and borrow money, no one can do much with Dogecoin.
Dogecoin is also not a reliable store of wealth as it usually requires some level of long-term trust in the coin and the blockchain on which it is built.
“If you look at the Dogecoin log for yourself, I don’t even know if there has been anyone in the past few years who has added new functionality or code,” Birla said. “Dogecoin doesn’t really have a development team behind it.”
Given these restrictions, Dogecoin seems to be purely speculative. Dogecoin has value because other people believe it has value. And because they believe someone else is willing to buy it from them at a higher price.
“We see an increase in the price of Dogecoin as a factor in low liquidity and extreme growth in the network,” said Greenspan. “Once the network has reached critical mass, I don’t think that kind of growth is sustainable.”
But all is not lost for the future of Dogecoin.
“The real value lies in today’s meme-driven culture, and Dogen represents the network value of memetics, which can prove tremendous,” said Bucella. “If at some point the Doge community decides to implement a burn or new supply mechanism through a protocol hard fork, there is a higher chance that this value will be maintained over the long term.”
Disclosure: “Saturday Night Live” is a television show hosted by NBCUniversal, the parent company of CNBC. CNBC owns the exclusive off-network cable rights to “Shark Tank,” in which Mark Cuban is a panelist.