Who let the Doge Out? | The Meteoric Rise of Dogecoin explained.
Tesla CEO Elon Musk tweeted, "Who let the doge out?" on the 7th of February. The market was quick to react to the earth's mightiest influencer's tweets, as if it was some sort of secret launch code towards a record setting buy for Dogecoin. In just one day (8th February), Dogecoin went up 37% to a record high of 8.5 cents. This is not a new phenomenon for Musk, who has been famed to affect the stock and cryptocurrency markets in under 280 words, as was seen with the case of GameStop, Etsy and others earlier.
That was not the end of the Doge flurry. The meme-y dog face appeared multiple times on his Twitter feed in the subsequent weeks and has been causing havoc in the prices of the coin which went, quite literally, "Too the Moon" post the February tweets. Dogecoin briefly surged to an all-time high of 69 cents in the first week of May. To put it into perspective, a $1,000 dogecoin purchase on the dawn of new year, would be worth around $120,000 at a high of 69 cents, a gain of more than 12,000% (according to CNBC calculations)
Even though Dogecoin, a cryptocurrency meant to be a satirical version of Bitcoin, was considered a joke, it's market cap of more than $50 billion makes it bigger than Ford, Marriot and Door dash in valuation.
The Dogecoin Brand
Dogecoin launched in 2013, and was developed by Billy Markus and Jackson Palmer as a joke inspired by the Shiba Inu dog meme. Where it varied from it's competitors was how it was not just a cryptocurrency and a thing for "crypto-nerds" but essentially a meme-y brand. It branded itself as a fun and warm altcoin, separating itself from not just other crypto, but also the consumer. The above notion was driven by community driven acts such as fundraisers for the Jamaican Bobsled Team which had qualified for but could not afford to go to the Sochi Winter Olympics.
The fact of the matter remains, due to it's nature, most of the consumers who hold Dogecoin don't do that for the "investment" part of it, and do it to be part of a culture.
The Memecoin Trend
Dogecoin hasn't just established itself as a brand. It's a brand everyone wants to copy. It has paved the way for many other Meme-coins, for pigs, lemurs, and more.
SHIB, AKITA and the works, are just meme coins whose entire existence is to mimic Dogecoin. With a market cap of $6.52 billion (17 May 2021), SHIB is again, not JUST an imitator but an actual cryptocurrency with scale. Even more absurd is the fact that the others like AKITA don't even have a market cap because there's no information regarding the number of coins in circulation.
May 2021 saw a few periods of time when these five memecoins (SHIB, LEASH, AKITA, KISHU, and ELON) produced upwards of 1.5 Billion USD in trading value on ONE platform alone. There cannot be a clearer sign of a bubble than so many copied memecoins generating so much.
A rollercoaster like no other
Most altcoins are deflationary, which essentially means that there is a limit to the number of coins that exist. The most famous example of the same is Bitcoin (BTC), which has a cap of 21 Million coins, and thus, the world will not have any new bitcoins after 2040. What this does is, it increases the value of each individual coin over time. In basic economics words, less supply=more demand, which leads to prices going up.
In contrast, for a fiat currency like the Indian Rupee, the central bank can issue new money at any time and there's essentially no limit to the amount of money they can issue. In this aspect, Dogecoin is closer to govt-controlled currency than Bitcoin. However, while Dogecoin is an inflationary currency, it can still experience heavy price volatility due to Dogecoin Whales. 'Whales' are individuals who hold large amounts of coins of a certain cryptocurrency. This makes them powerful enough to manipulate the valuation of the said cryptocurrency and is seen as a major risk factor contributing to the volatility.
Currently, as reported by WSJ, the biggest Dogecoin whale holds 28% of circulating supply, which as of 21 May 2021, stands at $14.7 billion. It has been suggested by even huge Dogecoin supporters that it’s uneven concentration in the hands of a few holders is an obstacle for the currency.
"The value of Dogecoin can change 10-20 per cent over night. It’s too volatile and seasonal. It’s the same reason we don’t use oil or gold for day to day currency transactions". - Deepanshu Mohan, Associate Professor of Economics at OP Jindal University, on the inflationary nature of Dogecoin
He added that most of the surge in valuation of cryptocurrency can be explained by exogenous events, such as the role of the man himself, Elon Musk.
Cryptocurrency in India
Digital currencies are the talk of the world. They've been in the news lately and have set multiple records in the recent times, which are however, followed by huge one-day drop downs. Their volatile nature has led to many institutions around the world view them with doubt and suspicion. The huge amount of energy required to "mine" cryptocurrencies has also been a cause of concern and criticism. Cryptocurrencies are also increasingly criticised for their environmental impact, given the huge amount of energy required to create them.
Following are the views and actions of the top stakeholders as per the Indian domain-
The Indian government has been giving conflicting signals on this matter. Even though Nirmala Sitharaman (Finance Minister) said that there won’t be a total ban on the use of cryptocurrencies, there are plans to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 by the Centre, which is speculated to have provisions completely restricting and banning private cryptocurrencies.
On May 31st, the Supreme Court set aside the 2018 RBI order to restrict use of bank services to crypto holders, and stated that there is no legal basis at the moment to impose heavy restrictions on cryptocurrencies. However it may not hold this view in the future if a law is passed in Parliament banning the use of cryptocurrencies.
There has been an advisory board setup by the Internet and Mobile Association of India (IAMAI) and leading crypto exchanges to implement a code of conduct and self regulatory organization for the sector.
Hence, the existence and future of cryptocurrency in India still remains an enigma with no clear future.
Are these meme coins to be taken seriously? Well, the feelings of the finance community are mixed. While top players like Mark Cuban swear by Dogecoin, the criticism isn't less. Akand Sitra of cryptocurrency risk management platform TRM Labs claims that Dogecoin itself is a scam, with over 65% of Dogecoins held by the top 98 wallets across the world. However, being added to Coinbase, and even more tweets by the Ringmaster has led to a decent rise to Doge again.
Is Dogecoin here for the long run? Yes. Even though Dogecoin's origin as a joke has made it difficult to be taken seriously by mainstream media and financial experts, it is here to stay. Whether it remain a cheerful meme-y entrance to cryptocurrency like it has been, or it becomes a decent-to-hold investment? Only time will tell.
Sources: Marker, Business Insider, The Print, Wikipedia, Economic Times