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Dogecoin price dropping: is it a question of credibility?


Dogecoin may have started out as a joke but, with the cryptocurrency’s collective value having climbed as high as $54 billion earlier this week, it is no laughing matter for investors. Nonetheless, investors may want to think twice before diving too deeply into the wildly popular crypto token.

Created in 2013 by two software engineers, Dogecoin’s name is a play on the combination of Bitcoin and the Internet meme known as Doge —two of the most popular things in the online world at that point in time. Since the latter is a meme that usually features a picture of a Shiba Inu dog, the source of the brand’s popular canine image is quite obvious.

Funny dog memes won’t help this one

The crypto token’s humorous dog image was quickly embraced and helped it to become extremely popular on social media, leading to its adoption as a popular way for Reddit users to tip one another as a sort of reward for posting amusing or interesting online posts. Even Facebook got in on the action in 2014, when the social media giant approved the Doge Tipping App, which also allowed people to tip others with Dogecoin tokens instead of just using the basic “like” icon – and which made Dogecoin Facebook’s first officially approved crypto currency.

A group of Reddit users are such big fans of Dogecoin that they have long devoted themselves to helping send the token’s value soaring, much in the same way that Reddit fans recently banded together to send GameStop’s stock price through the roof. Dogecoin even has the celebrity backing of a handful of big names, such as Tesla’s CEO Elon Musk and rapper Snoop Dogg, among others.

“A place where young kids are gambling”

In recent days, all the above, coupled with overall rising investor interest in cryptocurrencies as a whole, helped Dogecoin rank among the top 12 cryptocurrency companies in the world, temporarily giving it a market cap worth even more than some blue chip stocks, such as Ford Motor Company. Despite all that, however, sophisticated investors are keeping their distance in favor of more sophisticated cyrpto currency alternatives.

“It is rare that new asset classes are built, and right now Bitcoin is about half a percent of global wealth,” said Mike Novogratz, Galaxy Digital’s CEO, noting that new asset classes typically migrate to become 6% to 8% of someone’s portfolio. “But crypto is a complicated one. You’ve got Bitcoin, which really is a digital gold and is a store of wealth. But you have other stores of wealth too. Shockingly to me, Dogecoin is nothing but a place where young kids are gambling and storing wealth,” Novogratz told members of the New York Alternative Investment Roundtable on Thursday.

Unlike Bitcoin, which has a finite supply of 21 million tokens, Jackson Palmer, the co-founder of Dogecoin, removed the initial 100 billion token cap place on Dogecoin in 2014 as part of an effort to boost people’s usage of it as a way of online tipping. As a result, there is no end to the number of Dogecoin tokens that can exist.

So far, that has yet to have any negative impact on demand. But as interest in crypto currency among both retail and institutional investors continues to rise, it is unlikely the enthusiasm of Reddit investors will be able to keep Dogecoin’s value propped up for the long-term as the investment community turns its focus to more sophisticated and technologically advanced crypto currency alternatives.

Listen to our podcast with Stephen Ehrlich, CEO of Voyager Digital, on trading and investing in cryptocurrencies

Big hitters are getting into crypto

“Bitcoin started as the people’s revolution — it was a middle finger to the system. There were no institutions and the 2017 rally literally was 99% retail. It was the little man’s fight,” said Novogratz, commenting on the initial emergence of the cryptocurrency market.

But now that the infrastructure and market cap of cryptocurrency companies has matured and significantly increased in size the market has caught the attention of major institutional investors like BlackRock, Guggenheim Partners and hedge fund pioneers such as Ray Dalio and Paul Tudor Jones, among countless others.

“What we’re going through now is this handoff from a predominately leveraged retail market to one where institutions are taking a bigger and bigger pie, and what should happen is that volatility should come down over time,” said Novogratz. “But we still have a lot of that froth. So, what you’ve seen in the last three weeks is a lot of really useless coins in lots of ways having these amazing spikes. Even Dogecoin, which is a meme, getting to a $50 billion market cap. In lots of ways it dings the credibility of the space, but that’s just a growing pain.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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