Is Dogecoin the GameStop of cryptocurrencies?

The resurgence in interest in the digital asset can be attributed to celebrities whipping up investor enthusiasm

Dogecoin is a virtual coin that few had heard of until recently, but is now making waves and headlines throughout the investing world. Photo: Getty Images

A heady cocktail of celebrity promotion, sensational headlines, coordinated social media hype and risk-on trade has created a strong tailwind for cryptocurrencies, triggering hyperbolic price moments. As the old saying goes, a rising tide lifts all boats. One such proverbial boat is Dogecoin, a virtual coin that few had heard of until recently, but is now making waves and headlines throughout the investing world.

No sooner had the breathless coverage of the dramatic rise and fall of GameStop stock fallen off the front pages, than the FOMO-fuelled momentum of Dogecoin promptly filled the vacuum. In no small measure, its swift rise to prominence was the doing of millennial and Gen Z traders chasing get-rich-quick dreams.

To borrow a cliché, the rise of the altcoin – a catch-all term for all cryptocurrencies other than Bitcoin – has been nothing short of meteoric. Dogecoin had clocked a more than 900 per cent jump in value for the year to date, going from $0.00473 apiece to $0.051154, as of March 2.

The staggering ascent, not without frequent and wild fluctuations both ways, continues to create a social media feedback loop that has been pulling in speculative investors.

Feeling irresistibly drawn to the thrill of low-stakes cyber cash game? Take a moment to grasp what’s going on before you get swept up by the noise and plough your life savings into Dogecoin.

What is Dogecoin?

The meme-based cryptocurrency, one of more than 1,000 brands of digital tokens in existence, was created in 2013 as a joke by engineers Billy Markus from IBM and Jackson Palmer from Adobe. The term Dogecoin was borrowed from a popular Doge meme at the time featuring a Shiba Inu dog.

The coin’s value remained flat for years, but over time it gained a following and the recent spike pushed its total market value past $10 billion, landing it among the top 10 digital coins on CoinMarketCap’s ranking as of February 8. It has since fallen to 14th spot and its market cap has nearly halved as of March 2.

Why is Dogecoin in the news?

Dogecoin's revival in the past few weeks can be attributed to investor enthusiasm whipped up by a roster of high-profile celebrities, including Tesla chief executive Elon Musk, rapper Snoop Dogg, former Kiss frontman Gene Simmons and billionaire entrepreneur Mark Cuban. The public backing and social media plugging by these influential people pumped the price of Dogecoin to a record high.

“Elon Musk’s tweets about Dogecoin sparked renewed interest in the fringe altcoin, which has since snowballed into a social investing movement akin to what we saw with GameStop and the r/wallstreetbets community on Reddit,” says Charles Hayter, the chief executive of Bitcoin and cryptocurrency data provider CryptoCompare.

“It shows the power of social communities and the impact they can have on markets when organised by influencers and meme culture.”

An underappreciated reason Dogecoin has proved so popular with the social investing community is that “it’s a joke coin that doesn’t take itself too seriously unlike a lot of the altcoins out there that claim to be the next ‘Bitcoin killer’,” says Mr Hayter.

Should investors buy Dogecoin?

Given the frenzy and low barrier to entry, some investors may look at Dogecoin as the ticket to a Bitcoin-like ride. However, experts caution against rushing in blindly.

“The resurgence in attention to Dogecoin may seem attractive to investors due to its volatility but for the currency to ever have intrinsic value, scalability and security issues need to be addressed,” says Michael Kamerman, chief executive of Skilling, a forex and contract for difference (CFD) trading platform.

Dogecoin is, undoubtedly, a risky investment, so the usual investing rules apply. “Investors should query why the currency exists and what its use cases are,” he says. “If not, it may prove difficult to have long-term success in calling the direction of this particular digital asset.”

For the average retail investor, a cautious approach to any altcoin investment is advised.

“Don’t invest more than you can afford to lose,” says Mr Hayter. He much prefers investors own Dogecoin as a virtual memento. “If you want to be part of history, you may want to buy a few Doge, that’s why billionaire investor Mark Cuban bought it.”

Mr Cuban admittedly bought a few dollars worth of the meme cryptocurrency for his son as an educational tool, but mostly for its entertainment value. "Dogecoin is less than a dime [10 cents]. You can buy $1 worth or $10 worth, and have fun watching it all day," he says in a tweet.

It may be noted that Dogecoin has set itself apart from other cryptocurrencies, particularly Bitcoin, because there are no limits to the numbers of Dogecoins in circulation.

“This is intended to maintain the incentive to mine, by removing the cap on coins,” says Mr Kamerman, but makes it clear that “the main driver behind Dogecoin’s popularity is its online communities, coupled with support from high-profile business magnates like Elon Musk”.

The road ahead

It’s hard to predict the market direction, but Mr Kamerman hypothesises that “the variables underpinning such run-ups in price will remain unchanged for the short-term”.

Price rallies, near-zero interest rates, social media amplification and online trading platforms have conspired to create an environment where investors and traders are almost encouraged to make risky bets.

“Mainstream news continues to proffer stories about how the wealthy have become even wealthier on the back of rising stock prices – during a global pandemic,” says Mr Kamerman.

The market exuberance may or may not ebb any time soon. A desirable outcome of all this hype would be the introduction of new and interesting products to trade, says Mr Kamerman. “I am especially interested in security tokens and the value they bring to democratising investments in illiquid instruments or instruments too expensive for the average trader to take a position on,” he notes.

Where to buy Dogecoin?

Until recently, investors could buy digital currencies directly at crypto exchanges and trading platforms such as Coinbase, Robinhood and Binance. However, investors now have a range of financial instruments – such as futures, options, exchange-traded funds and CFDs – to access the cryptocurrency market.

Mr Kamerman stresses that while more products and lower fees means greater accessibility, “each of these financial products has unique advantages and disadvantages,” which investors must weigh carefully.

The most recent crypto-themed product was launched in February in Canada, making it the first North American country to offer a Bitcoin ETF. The response from investors was so overwhelming that the fund collected a whopping C$421.8 million ($331.2m) in just two days.

Across the pond, Europe already has several exchange-traded crypto-tracking products, including the $1.7 billion Bitcoin Tracker EUR, the world’s largest Bitcoin exchanged-traded product, listed on the Stockholm Stock Exchange in Sweden.

Investors can also get an indirect exposure to the cryptocurrencies market by buying into blockchain ETFs. While these funds don’t invest in digital money directly, they own stocks in technology companies that profit from blockchain, a decentralised digital-ledger technology used to record cryptocurrency transactions.

Future of virtual currencies

The media hype, sky-high valuations and persistent public support have forced some critics to reconsider their stand on digital currencies. Much of the credit for this change goes to Bitcoin, which is also the biggest beneficiary of the mainstreaming of cryptocurrencies.

In recent months, Bitcoin has managed to secure a nod of approval from leading celebrities, giant corporations, legacy financial institutions and payment processors, bestowing upon it a level of legitimacy few imagined possible.

“As long as its real-world use cases increase and more and more traditional financial organisations embrace Bitcoin, the cryptocurrency will likely remain popular and find support with traders and investors,” says Mr Kamerman.

As a result of the recent run-up in prices, the market cap of Bitcoin has been hovering around the $1 trillion mark, prompting some crypto watchers to predict it may replace the US dollar as the world’s reserve currency.

Mr Kamerman isn’t sold on the suggestion, though. “I think cryptocurrencies are here to stay but I do not think they will ‘overtake’ a fiat currency,” he argues.

Yet, Bitcoin’s steady march towards widespread acceptance means that “the traditional financial world will have to embrace the technologies that underpin cryptocurrencies”, Mr Kamerman adds.

Fearing significant adoption of virtual currencies could lead to substitution of national legal tender, some central banks have "minted" their own digital currencies, called Central Bank Digital Currencies. A report put out by a group of seven central banks and the Bank for International Settlements provides greater insight into CBDC and its role in an ever-evolving digital world.

Could that mean the end of Bitcoin and other unregulated alternative digital currencies? Mr Kamerman doesn’t think so.

“Bitcoin will not step aside and play second fiddle, but instead continue to remain the most popular asset to speculate on for an overall view on cryptocurrencies and blockchain technologies,” he adds.