Dogecoin: The Story and Lessons from Rise to Fall
Dogecoin is a familiar name in the meme world and the cryptocurrency market. It is an alt-coin or an alternative coin. However, its humorous purview shouldn’t be taken for granted. After all, the meme cryptocurrency is worth more than the auto-manufacturer Honda. Backed by Elon Musk, the currency is bigger than his own company, SpaceX. Just a while ago, the combined market capitalization of Dogecoin was more than that of Infosys. A 33-year-old in the USA invested all his savings in Dogecoin almost instantly became a millionaire after a good bull run in the currency. So is the currency a joke? Or is it not? Let us explore the journey of Dogecoin.
The Journey Of Dogecoin
It was the year 2013, a spiral of innovative memes had hit the social media market. One such meme was of the ‘Shiba Inu’, a Japanese breed of dog. The dogecoin is designed to have the face of the Shiba Inu dog on it.
It was around this time when an engineer at IBM, Billy Markus from Portland, Oregon decided to come up with a ‘fun’ alternative to the famous cryptocurrency, Bitcoin. He created the design and the website which was then noticed by Adobe engineer Jackson Palmer who contacted Markus and they joined hands to create the protocol for Dogecoin. Dogecoin wasn’t intended to be taken seriously.
Dogecoin wasn’t the only other alternative cryptocurrencies available at the time. Litecoin, Namecoin, Peercoin, Luckycoin were some others to name a few. Dogecoin is quite different from the rest in terms of its concept, protocol, technology, value, and mining. For Bitcoin, a maximum of 21 million Bitcoins can be mined. It is estimated that the limit will be reached somewhere around the year 2140. As of May 7, 2021, Dogecoin has a market capitalization of $99.3 Billion, which is higher than almost all of India's Nifty 50 companies.
Price Action Over The Years
Till January 2021, Doge was like any other not-so-big cryptocurrency in the market. It picked in discussion group forums like Reddit and Discord. One day in January, Elon Musk, the founder of companies like Tesla and SpaceX put out a tweet with a single word, ‘Doge’. Dogecoin gained some chatter on discussion forums like Reddit. The chairman of WallStreetBets, which was also responsible for the GameStop Short Squeeze Fiasco earlier, tweeted “Has Doge ever been to a dollar?”. What followed was a massive ~99% increase in the value of Dogecoin by early May 2021. What followed was a number of tweets made by Elon Musk just patronizing Dogecoin. Every time he did, the price of the cryptocurrency saw a fluctuation. Soon Dogecoin for its humorous tweets made by Elon Musk and some other influencers became a centre of memes and jokes.
Doge And Other Coins, Are They Safe?
Bitcoin, the of the first cryptocurrencies to come into existence, is quite different from Dogecoin. Dogecoin has an unlimited supply. Bitcoin on the other hand has a fixed supply of 21 million bitcoins. The limited supply of Bitcoin causes an inflationary effect that leads to an increase in price. A sustainable price rise is not possible in Dogecoin, supply almost always replenishes demand. Bitcoin is backed by solid technology, unlike Dogecoin. In 2013-14, there were a series of cyberattacks on Dogecoin wallets and users where they lost almost 21 million coins to the theft. However, members of the Dogecoin community came together, chipped in, and donated the lost amount to the respective individuals.
Should You Invest In Dogecoin?
A simple answer, no. It is an extremely risky asset. Predicting the price movement of Dogecoin is a very difficult task. It might be a short-term investment option, but definitely not good for a long-term investment. The crypto is controlled by very few entities like popularity, memes, statements by Elon Musk, etc. Close to 90% of the cryptocurrencies are controlled by 99 cryptocurrency wallets, meaning there is a high concentration of the asset.
Prices of cryptocurrencies like Bitcoin and Ethereum are impacted by different indicators like price action, halving period, volume, and other technical indicators. Dogecoin on the other hand is impacted by how funny it is. As silly as it sounds, Dogecoin has seen rallies only after it is patronized by influencers on social media. Elon Musk was to appear on the famous American talk show Saturday Night Live(SNL). People were expecting Elon Musk to ‘hype’ the alt-coin. Instead, Elon Musk joked about it and called Dogecoin a “hustle”. The price of Dogecoin slumped shortly after the show. Essentially, a single person was controlling the value of the coin which is actually dangerous for an investor.
It is advised that a person researches and gets to know the basics of trading, technical analysis, and fundamental analysis of cryptocurrencies before trading them.