A Reddit-Fueled Frenzy Drives Dogecoin to New Highs
The rise of Dogecoin (CCC:DOGE-USD) was quick and exciting. A Shiba Inu-themed cryptocurrency that was the brainchild of two software engineers has taken the investing world by storm. After years of being overshadowed by more popular coins like Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD) and Litecoin (CCC:LTC-USD), Dogecoin got its turn in the spotlight after Tesla’s (NASDAQ:TSLA) billionaire boss tweeted “Who let the Doge out.”
On Jan. 29 the currency was up 800%, becoming the “crypto (GameStop (NYSE:GME) gme” according to one Reddit user. A seemingly unknown coin now has the internet abuzz. If there’s one lesson we can learn from this, it’s that memes and tweets have the power to move markets.
Dogecoin Is Proof That Memes Can Move Markets
Although many may have heard about Dogecoin for the first time in the last couple of weeks, the cryptocurrency has actually been around since 2013. The coin was the product of a joke by two software engineers who wanted to pay homage to Bitcoin’s then-questionable reputation. A coin that meant to garner nothing more than a few laughs has now become the face of the cryptocurrency industry. Its claim to fame is the result of a series of tweets and memes.
For reasons that still remain unclear, Dogecoin caught the attention of billionaire Elon Musk. Tesla’s tenacious CEO took to Twitter (NYSE:TWTR) to tweet about the coin, writing “no highs, no lows, only Doge” along with a Lion King meme with the Shiba Inu dog on Simba’s face.
Not long after this, Dogecoin’s price skyrocketed, surging more than 800% in 24 hours. Other billionaires and pop culture icons like Gene Simmons and Snoop Dogg got in on the action, tweeting about the currency as well.
Dogecoin is proof of the radical shift in market power with people participating in the rally for a sense of community. Although the coin has no intrinsic value like stocks or bonds, investors are rallying together to get its value to $1. The Dogecoin phenomenon is a case study in how culture and technology have the ability to literally move markets. Just as we saw in GameStop stock’s meteoric rally last month.
So Should You Invest?
Dogecoin has dipped 20% since its Feb. 7 high of 0.087159. Nevertheless, the currency is still up 1,350% this year with a market value of $8 billion. While many have expressed enthusiasm about the currency, others remain cautious.
An article by MarketWatch explains that unlike traditional Bitcoin which is limited in supply, Dogecoin has no built-in limit. This means that it can be mined for hundreds or thousands at any given time. Ultimately, the currency value is the result of a mass-market movement that remains untethered.
So the currency, as it stands, is largely speculative. Billy Markus, the founder of Dogecoin, recently stated the rally is “not something (he) can comprehend.” He likened the rally to that of stocks like GameStop and AMC (NYSE:AMC) — both of which have cooled down considerably from their highs. Many researchers have also urged investors to exercise greater caution when it comes to cryptocurrencies like Dogecoin.
The rise in the currency’s price can serve as a real temptation to investors but its long-term growth remains unsustainable. On one hand, the currency is a great investment alternative in an environment where interest rates are close to zero. But on the flip side, there’s a lot we still don’t know about cryptocurrencies. Unlike traditional investments, Bitcoin is disproportionately controlled with 95% of the currency controlled by just 2% of the market.
The Bottom Line
The recent rally in Dogecoin is a testament to the power of memes. While the price spikes are definitely attractive, it’s also worth noting that cryptocurrencies are incredibly volatile. According to Garrick Hileman of blockchain.com, Dogecoin could lose 90% of its value.
With this being a real possibility (as we saw with GME and AMC stock), I wouldn’t go all-in on Dogecoin. However, if you want to be a part of the mass market movement, Dogecoin does trade on the cheap and is worth a small investment. Even if things don’t go your way, it could serve as a great learning opportunity.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.