Nothing says 2021 like dogecoin, a dog-themed cryptocurrency that has just lately skyrocketed in value, thanks partially to the help of Elon Musk and different celebrities. For a time it was the 10th largest cryptocurrency. Dogecoin completed 2020 at lower than half a penny per DOGE, in keeping with CoinDesk’s dogecoin price index. It now trades at or above 5 cents, placing its year-to-date returns at round 1,000%.
It might be tempting to put in writing this off as a speculative frenzy or only a fluke, however that may be lacking the bigger image. We must always pay attention to dogecoin’s rise, if solely as a result of it displays a few of the key tensions of this second in time.
Emily Parker is CoinDesk’s World Macro Editor.
Listed here are only a few issues that dogecoin mania says concerning the world we stay in now.
There’s a skinny line between absurdity and seriousness
Dogecoin is actually named after a canine, and is represented by a Shiba Inu. The rapper Snoop Dogg just lately rebranded himself as Snoop Doge. If this all sounds ridiculous, it’s as a result of it’s. Dogecoin’s creators totally meant it for it to be a joke, and absurdity is baked into its very design.
At this time, a few of the extra severe individuals within the not-always-serious crypto trade are irritated by dogecoin’s prominence. They’ve spent years attempting to persuade those that cryptocurrency has actual expertise behind it, even when nobody exterior of the trade had the slightest thought the way it labored. And now, lastly, the world is paying consideration. Nearly day-after-day there appears to be one other model identify attempting to get in on the motion. PayPal. Tesla. Mastercard. Harvard. Morgan Stanley. America’s oldest financial institution (BNY Mellon). The listing goes on, and bitcoin’s value has responded accordingly, passing $50,000 this week.
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However now, you’ve got this punchline of a coin taking on a few of the highlight that bitcoin labored so exhausting to acquire. What sort of message does that ship to the non-crypto world?
It sends a message that we must always already know: What as soon as appeared absurd to many can grow to be useless severe. Earlier than 2016, a lot of the world noticed Donald Trump as an outrageous actuality TV star who had no likelihood of profitable the U.S. presidency. They noticed him as a joke, and lots of nonetheless do. However he nonetheless held essentially the most highly effective place on this planet for 4 full years.
That is clearly not an ideal comparability, and the purpose isn’t to liken dogecoin to Trump. It’s merely to say that dogecoin “joked” its solution to a roughly $7 billion market cap, and that’s actual cash. It additionally implies that if DOGE mania bursts, some individuals are going to face some very actual losses.
Collective perception can trump ‘fundamentals’
How does this occur? How does one thing that appears patently absurd grow to be undeniably actual? It’s partially as a result of actuality appears to be more and more formed by collective perception, quite than underlying details.
This collective perception can prevail over extra sensible issues. Until recently, Dogecoin was basically deserted by builders, with its final main software program launch occurring two years in the past. Others have identified that it lacks its own miners, which makes it weak to assault. Critics will say the current DOGE growth is pushed solely by hypothesis, quite than basic worth.
Dogecoin is a sentiment-driven asset. However these days, loads of issues really feel that manner. Worth is created by crowd sentiment and powered by the rocket gas of social media. The obvious instance is GameStop, the place Redditers joined forces to drive up the value of a closely shorted inventory. A more moderen instance is MarsCoin, which shot up over 1,000% after Musk talked about it on Twitter.
Teenagers rise to dizzying levels of fame on TikTok, buoyed by the collective support of fans and the app’s mysterious algorithm. Do those seconds-long videos deserve global acclaim? Are these people deserving of fame? Maybe not, but it also doesn’t really matter. Some are becoming millionaires. This may be harmless, but less so are internet-driven conspiracy theories that don’t have to be based in fact to have real-world consequences. People just have to believe they are true.
Collective belief has always been a powerful force, but it can’t move markets on its own. What’s different now is that social media can translate collective belief into collective action at an unprecedented pace and scale. Celebrities like Musk have been able to leverage their massive fan bases to drive people to make concrete moves like purchasing DOGE and driving up its price.
People want decentralization, but it remains out of reach
The idea of collective belief is at the heart of money, and thus of crypto culture. Without a shared belief in its value, fiat currency would be little more than paper and metal. But while central governments can print money and have an impact on price, bitcoin is meant to be independent of that system. Bitcoin’s price, to put it simply, is determined by the amount that people are willing to pay for it. In the early days, that was only a few cents. Now, it’s reached over $50,000.
Dogecoin represents an ideal of what cryptocurrency was supposed to be. It is truly weird, and lives outside of the financial system. Its founders have effectively left the scene, leaving it to community rule. Big banks want nothing to do with it. It seems safe to say that it will be a while before we see a major headline featuring both Goldman Sachs and dogecoin.
Bitcoin has clearly grown up, and is gaining the respect of more traditional players. That’s good for mainstream adoption, and perhaps for the industry as a whole. But bitcoin’s maturation has also come with a degree of centralization – outsized influence is enjoyed by big investors (known as whales), as well as certain mining pools and exchanges.
See also: Michael Casey – Money Reimagined: Narratives Wall Street Can’t Control
Musk is a widely known fan of bitcoin and has instructed that dogecoin ought to grow to be the “people’s crypto” – i.e., a democratic type of cash. This faucets into the zeitgeist we noticed within the GameStop frenzy, which was an assertion of power by retail buyers over large hedge funds. However is GameStop, as entertaining as it might have been to observe, actually going to change the steadiness of energy within the monetary world?
Democratization of finance is tough to realize. So it ought to come as little shock that Dogecoin isn’t that decentralized in spite of everything. Musk just lately identified that Dogecoin’s wealth is simply too concentrated. This declare was backed by Coin Metrics, which famous that the highest 100 DOGE addresses maintain 68% of its whole provide, in comparison with 13.7% for bitcoin. Put another way, the highest 1% of DOGE addresses have 94% of whole provide.
Musk has tried to handle this drawback by urging large DOGE holders to promote, even providing to pay cash for them to void their accounts. Nevertheless it’s exhausting to flee the irony right here. An unfathomably wealthy man pumped DOGE’s value after which complained a couple of focus of energy, which he provided to repair himself.
Dogecoin ought to be taken significantly, if not actually. Its rise is highlighting tensions that aren’t going away anytime quickly. We must always take note of them. In any other case, the joke’s on us.