2021-03-15 12:10:00

Dogecoin Started as a Joke, but It’s Kicked off Some Serious Speculation

Initially designed by Billy Markus and Jackson Palmer “for sillies” (Australian for “as a joke”), Dogecoin (CCC:DOGE-USD) has become a cryptocurrency with a market cap of over $7 billion.

Source: Shutterstock

Tweets early this year from Elon Musk took Dogecoin and early investors on a parabolic ride. What turned out as a joke has resulted in one heck of a ride for investors bullish on the broad crypto sector.

The question is: can speculative assets continue this parabolic rise forever? Should any investor consider buying any asset with questionable intrinsic value, and owners that openly don’t believe in it?

Dogecoin Goes Parabolic

As far as I’m concerned, we’ve entered the twilight zone when it comes to valuing securities. Traditional fundamental equity analysis has been replaced by speculative fervor in a way that resembles few times in history.

Today, growth stocks are being valued as if interest rates will stay low forever. Investors seem to believe parabolic growth will continue indefinitely. Cryptocurrencies like Dogecoin that were created with the intention of having no intrinsic value, other than as a way to create a community online, are soaring to valuations larger than many established companies with real revenues and profits.

It bears repeating that Dogecoin was created as a joke. These digital coins had no intrinsic value to begin with. Indeed, the company’s founders didn’t expect Dogecoin to amount to anything.

In February, it was reported that Billy Markus (the co-creator of Dogecoin) sold all his Dogecoin six years ago to buy a Honda Civic. He had no inkling then of why his creation allowed him to purchase a car, but took advantage of the market to do so.

Like many other stories we’ve heard about folks using Bitcoin (CCC:BTC-USD) to buy pizza in the early days, it’s nerve-wracking to think about what these holdings would be worth today for those that could have held for a few years.

Regardless, I think investors in cryptocurrency options like Dogecoin right now should follow the advice of its founders: sell while you it’s possible to pocket a nice profit.

No Real Use Case Right Now to Own Dogecoin

Unlike Bitcoin and other cryptocurrencies like Ripple (CCC:XRP-USD), Dogecoin’s use case is underwhelming. This crypto option appears to be one limited in scope to speculators at present.

In assessing whether or not owning a digital token makes sense, investors need to think simplistically. I think two pertinent ideas are relevant to whether or not a particular cryptocurrency is likely to retain value as a true currency:

  1. Do other investors believe a particular crypto option is a safe store of value?
  2. Is it possible to use said cryptocurrency for anything useful?

Broadly speaking, most cryptocurrencies are nowhere near ubiquitous. We’re not even close to living in a society where buying our groceries with Bitcoin is possible. In that regard, the case can be made these “currencies” really don’t pass the litmus test right now.

I have serious questions about Dogecoin’s validity both as a store of value and a widely-used unit of commercial exchange.

Conclusion

Dogecoin’s valuation represents the speculative nature of the market today perhaps better than any company right now.

This is a cryptocurrency asset with no value other than what has been given to it by speculators, porn stars, and celebrity CEOs. There’s perhaps no Reddit-fueled asset I’d avoid more rigorously than Dogecoin right now.

Investors with the stomach for cryptocurrencies should just keep it simple and buy Bitcoin. Conservative long-term investors with any sort of reasonable aversion to risk? Avoid these assets altogether.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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