“Hey guys I just became a Dogecoin millionaire.” These were the words of a 33-year-old Los Angeles-based investor, Glauber Contessoto, in a YouTube video on April 15, 2021. He had invested over $180,000 in Dogecoin (DOGE) on February 5. The price of the crypto at that time was about $0.45. Contessoto had been inspired by the Reddit community and the tweets by Tesla’s CEO Elon Musk. Elon Musk has been a firm proponent of the coin since 2018.
This particular incident summarises the bizarre and meteoric rise of a coin that started off as a joke between two software engineers, Billy Markus and Jackson Palmer, in 2013. Based on a quirky Doge meme, this crypto asset had risen approximately 7,685%, YTD, as of May 3, 2021. Backed by powerful social media influencers like Elon Musk and rapper Snoop Dogg, Dogecoin is now among the top 10 cryptocurrencies in the world, with a market cap of $49 billion.
Dogecoin was started as a joke between two crypto enthusiasts and software engineers. Their goal was to make the project “as ridiculous as possible.” Centred on a popular internet meme featuring the Shiba Inu, accompanied with phrases like “much wow” and “such tired,” the project surprised its makers by attracting millions of visitors to Dogecoin.com. Within two weeks of its launch, on December 6th, 2013, the Reddit channel r/Dogecoin had 19,000 users. Despite China’s ban on Bitcoin transactions, the coin’s price had increased 300%.
Not only that, in its early days, Dogecoin enthusiasts on Reddit raised more than $26 million to help the Jamaican bobsleigh team reach the 2014 Winter Olympics.
On the technology aspect, Dogecoin was forked from Luckycoin, which in turn was a fork off Litecoin. So, in essence, DOGE is a fork of Luckycoin, Litecoin and Bitcoin. It is a peer-to-peer payment system just like Bitcoin and Litecoin, but with a few differences. For Dogecoin, mining coins is easier and faster with the “Scrypt” algorithm, which makes the coin more efficient in processing payments too.
It takes only a minute or so to ratify and add new blocks to the Dogecoin blockchain, compared to 10 minutes for Bitcoin. Secondly, while BTC has a lifetime cap of 21 million, there is no cap on Dogecoin. Initially, the coin featured a randomised reward for mining each block. The aim was to irritate miners and discourage them from using the coin as a payment solution. However, this feature was reversed in 2014, after the makers realised just how serious online followers were about the project.
Not only was it a “fun” cryptocurrency that was easy to mine, but its outrageous creation attracted people who wanted to freely delve into the digital asset class. Another vital reason for DOGE’s rise to stardom has been celebrity endorsements, especially from Elon Musk.
Image Source: https://twitter.com/elonmusk/status/1357236825589432322
Since 2018, Elon Musk has been actively tweeting about the project, attracting a lot of Reddit users to the coin. One of the richest men on the planet, Musk has the power to move the financial and crypto markets. In what is termed now as the “Musk Effect” or the “Elon Effect,” he caused DOGE prices to rise 25% on December 20th, 2020, with the tweet “One word: Doge.”
During the GameStop stock market frenzy in January 2021, Dogecoin gained over 800% on January 28th. This was due to Musk tweeting a picture of a dog on a magazine cover. This huge surge was fuelled by the same Reddit trading collective, Wall Street Bets. This is the same group that had propelled GameStop’s share price. A TikTok post by Carole Baskin, from Netflix’s “Tiger King” also helped matters.
Image Source: Twitter
Over the next 4 months, tweets from Elon Musk and other celebrities like Snoop Dogg would elevate the crypto’s price higher. On February 7th, 2021, Elon Musk tweeted a video named “D is for Dogecoin! Instructional video,” which had over 57.2K re-tweets as of May 3rd, 2021. As a result of this, Dogecoin surged 31%.
Image Source: Twitter
The #DogeDay hashtag trending on Twitter drove the coin price higher in early April 2021. This was in spite of Bitcoin and Ethereum’s decline during the same period. On April 20th, 2021, Bitcoin fell 3.4% in the fifth straight session of decline and ETH fell 5.1%, while Dogecoin rose to a price of $0.4123.
On April 28th, 2021, Musk teased his online followers with hints of Dogecoin appearing in his hosting debut of Saturday Night Live on May 8, 2021. The value of the coin surged 20% to $0.31 , after he called himself the “Dogefather” in his tweet.
Image Source: Twitter
The coin’s rise reminds us of the sudden rise of GameStop’s stock earlier in 2021. From a funny meme to an asset worth more than the Ford Motor Co., the rise was propelled by individual retail traders who now have access to low-fee trading environments and huge amounts of stimulus money offered by various governments.
The latest frenzy to drive Dogecoin prices was the theme “Doge Day” on online trading forums and social media channels like Reddit, to push the asset’s price towards $1. Both the GameStop and Dogecoin episodes tells us how organised efforts by online communities, even “meme-centric” ones, can now impact market prices.
This swarm activity has never been seen before, and naturally it has worried participants. This has led to analysts and investors like Mike Novogratz warning people of asset bubbles fuelled by investor euphoria, which might not end well for traders.
Some people see Dogecoin as a “cultural asset” rather than a financial one. While Bitcoin is now a serious asset for institutional investors, due to the fact supply is limited, Dogecoin is an asset that people are adding to their wallets as a “fun” activity or to be a part of a community movement.
Even though it is Elon Musk’s favourite crypto, it remains to be seen whether Dogecoin will have any real-world value. It is indeed creating overnight millionaires, but traders should consider careful research and risk management before trading it.
Cnet, Cnbctv18, Coindesk, Marketwatch, TheGuardian, Coinmarketcap, Forbes.