Cryptocurrency trading has had quite a month. In the eyes of traditional investors, basing their decisions on fundamentals-based valuations, the image of the sector as the Wild West of the investing world has been given ample confirmation.
After all, how to make sense of the fact that Bitcoin currently trades at more than $46,000, with a capitalisation exceeding that of JP Morgan Chase and Berkshire Hathaway? Another cryptocurrency that has recently ‘caught a wave’ is Dogecoin (DOGE), which has become the 12th largest crypto by market capitalisation. After bumping along for a couple of years at around $0.0021 (January 2019), the price rocketed to $0.0462 on 29 January this year, after what looked like an endorsement from Tesla founder Elon Musk, before falling back to $0.0283 a day later.
Since then, the price has edged up steadily, pushed by the same community of investors that organised the GameStop short squeeze and took the Wall Street hedge funds to the cleaners.
At time of writing (5 February), Dogecoin stands at $0.0503, giving it a market capitalisation of $6.5bn.
Will the price continue on its current path or is this more evidence that the tech bubble is about to burst? Conventional wisdom would suggest a price collapse but a characteristic of cryptocurrencies is that anything is possible. Dogecoin was launched in 2013 as a joke, by Jackson Palmer and Billy Markus, according to Coindesk, “to satirize the growth of altcoins by making the doge internet meme into a cryptocurrency”. Over time, it has gained popularity for allowing micro-payments, for being cheap and for its cutesy social media presence. Dogecoin has been adopted by a number of gaming companies, such as such as eGifter and AllGamer.net.
Looking past the wild Dogecoin price swings
It is difficult to look past the wild price swings, the celebrity endorsements and the essential jokiness of Dogecoin to see where the price might go. Last year, one analyst made a forecast that by the end of 2020, Dogecoin might get to $0.0032, which was close – the analyst couldn’t have forecast the Musk moonshot – and that in five years it might reach $0.0119. That looks tame but the old investing rule applies: what goes up, can also come down.
Not for Dogecoin’s fanatical fanbase, though. Its message is relentlessly upbeat and pushed on social media platforms like Reddit, TikTok and Twitter, with declarations such as “#dogecoin community is growing fast, beyond every expectation. It’s going to stay for a long time! We must stay together as long as possible. Buy and HOLD.” The official Dogecoin Twitter account says: “Please, everyone with a stake and vested interest and otherwise: Dogecoin is not a fad, it is not a pump and dump. It is becoming standard.”
Growth by exhortation won’t convince critics expecting a return to fundamentals-based valuations. But what if Amazon or Apple were to get into the business of cryptocurrency payment systems? Already, there is talk that the new Amazon CEO Andy Jassy, who as head of Amazon Web Services was responsible for introducing Amazon Managed Blockchain, may be looking at this. Such a development would be rocket fuel for all cryptocurrencies.
Sooner or later, cryptocurrencies will become mainstream and Dogecoin will no longer be a joke. Bitcoin, Ethereum, Ripple, Dogecoin are all early in the adoption cycle, with a long way to go. As the Dogecoin community members’ favourite slogan has it: “#Dogecoin to the moon”. But, if you do invest, expect a rough ride.