Dogecoin lacks most of the features that make cryptocurrencies useful or valuable like Bitcoin, so why is it rising and how will it end?
To those who have been in the crypto industry for a long time, Dogecoin has always been an oddity: A project that has exceptional approachability and appeal to newcomers.
At the time, that seemed like a necessary move – there were questions about whether DOGE (+8.39%) could survive at all. Then, yesterday, the top meme token eclipsed its patron chain.
In the end, dogecoin is more than double the size of litecoin when measured by market cap.
So what is happening here?
Money is what people make of it
A couple of years ago, there were some interviews with people in Iran, India, Singapore, Honduras, Nigeria and a couple of other places. It was assumed that bitcoin (BTC, +1.9%) would not be the token of choice because the transaction fees are, in many cases, higher than a day’s wage and just generally are out of whack with the value scales locally.
Those decisions are driven by a simple question: Of all the currencies to which I have access, which one is most likely to be useful?
For bitcoin, that utility comes in two flavors. One is predictability. People turn their local currencies into bitcoin because they want to store value that’s disconnected from local political and economic realities. Everyone knows about bitcoin’s fixed token supply as well as its largely unchangeable monetary policy, making it out of reach for governments.
The other reason, which can be even more important, is liquidity. People want to be sure that when they decide to sell there will always be someone there who buys at the market price.
So, even though in local terms bitcoin can be viewed as quite expensive, it is the consensus option. People can and choose to buy other tokens, but this “long tail” of crypto investing is incredibly, and growingly, diverse as the number of tokens to pick from expands. They’re more speculative as there is little or no consensus. That could change but the so-called first mover advantage and the network effect that bitcoin carries with it has been incredibly powerful. In other words, bitcoin is so useful because it’s what everybody uses.
Why is dogecoin rising and how will it end?
For most of this year, we’ve increasingly come to believe that dogecoin is acting like that now. Just as bitcoin is the consensus pick for people looking for “predictable moneyness” in their currency, dogecoin is looking like the consensus pick for people who want “meme-y wackiness” in their currency.
That certainly appears to be the case among the Elon Musks, Slim Jims and Mark Cubans of the world, not to mention a growing share of meme culture broadly.
This was highlighted on Conagra Brands’ corporate earnings call earlier this week. Conagra is not a hip firm. It owns a formidable basket of old-world brands including Slim Jim (smoked meat sticks), Marie Callender’s (a restaurant chain) and Hunt’s Tomatoes along with more than a dozen others.
But when it came time to talk about recent wins, Conagra’s CEO highlighted his team’s “dogecoin engagement strategy” as key. Doge has helped double Slim Jim’s Twitter followers, boosting engagement by more than 500%. Sean Connolly, the CEO, credited the dogecoin community with “playing a large part” in delivering Slim Jim the ultimate win in Adweek’s March Madness-themed brand face-off earlier this month.
Dogecoin has become the joke currency to beat. Everybody is willing to be in on the joke, which pushes up the price, which makes the joke even bigger. It’s a self-reinforcing cycle. Sort of like bitcoin but for the luls.
Now, Dogecoin could end badly: Lots of people buying DOGE at these prices don’t know the true story. As they say, easy come, easy go. But for now it sure looks like dogecoin is the gold standard of joke currencies, and maybe that seems just enough.