Since the 2009 launch of Bitcoin (BTC), cryptocurrencies have been controversial financial instruments. From industry-leaders such as BTC and Ethereum (ETH), to newer coins like Polkadot (DOT) and Tron (TRX), the role of virtual money in finance is a hotly debated topic. Amid the dramatic early-2021 spike in crypto values, talk of mainstream financial adoption reached a fevered-pitch.
Throughout the late-2020/early-2021 runup in prices, Dogecoin (DOGE) established itself as a cryptocurrency leader. Driven by retail bidders, celebrity endorsements and social media influencers, DOGE posted massive Q1 2021 gains. From a yearly open of US$0.0047 to a mid-April high of US$0.4481, the DOGE/USD increased its marketshare nearly 100 fold in roughly three and a half months. In doing so, Dogecoin became one of the hottest assets in the world.
What Is Dogecoin (DOGE)?
Launched in 2013, Dogecoin was originally conceived as a parody of Bitcoin. Created by IBM software engineer Billy Markus and Adobe developer Jackson Palmer, Dogecoin intended to captivate the public's attention by using a Shiba Inu dog as its mascot. Also, the name "Dogecoin" was said to be a combination of "dog" and "Bitcoin," a play on words designed to raise the coin's profile. Markus and Palmer's ploy worked, and home website dogecoin.com hosted more than one million unique visitors in its first month online.
According to its official website, "Dogecoin is an open source peer-to-peer digital currency, favored by Shiba Inus worldwide." From a more practical standpoint, DOGE is a cryptocurrency that utilises blockchain technology to conduct transactions. In this way, it is defined much like many other cryptos―a decentralised and anonymous means of exchange.
Technically, Dogecoin is written in C++ programming language and uses the Luckycoin blockchain. Luckycoin exists as a fork of Litecoin (LTC), which is itself a fork of Bitcoin. Thus, Dogecoin's lineage may be traced back to Bitcoin. DOGE is not capable of executing independent smart contracts like Ethereum.
Perhaps the most notable attribute of Dogecoin is its pop-culture appeal. Celebrities, influencers and prominent financial figures have all promoted DOGE on Twitter. A few of the more notable names are social media influencer Jake Paul, rapper Snoop Dogg and Tesla CEO Elon Musk. Also, Dogecoin has been used to fund high profile sports-oriented ventures such as bankrolling the Jamaican bobsled Olympic team and sponsoring a NASCAR entry.
Although DOGE functions similarly to other cryptos, it does have a collection of unique attributes. A few of the most prominent are instant global transactions, enhanced anonymity, ease-of-use and reduced fees. To send, receive, buy and sell Dogecoin, users access the blockchain via two wallets: Multidoge and Dogecoin Core. Users may download these software applications on Windows, Linux and macOS operating systems.
As of this writing, there are approximately 129.27 billion Dogecoin in circulation. However, contrary to Bitcoin, there is no limit placed on Dogecoin's future supply; it is free to inflate into perpetuity. Like other cryptos, new DOGE are added to the available supply through the process of mining. Below is a look at the technical specifications involved with mining Dogecoin:
- Like the prominent altcoin Litecoin (LTC), DOGE uses the scrypt algorithm. This is an open-source, proof-of-work consensus algorithm that is free to use, change and share.
- DOGE is mined at a rate of one minute per block (block time).
- 10,000 DOGE per block are awarded to miners.
- By 2050, it is estimated that 280.85 billion DOGE will be in circulation.
The scrypt mining algorithm has a lower hashrate than that of many other coins; this feature enables faster mining and fosters greater transaction speeds. As a result, DOGE requires less resources to mine, making it a more efficient crypto than the likes of Bitcoin or Ethereum. Accordingly, smaller transactions are practical, such as tipping online content creators or crowdfunding various enterprises.
DOGE Valuation Model And Market Sentiment
With a relatively short history, the cryptocurrency asset class remains very much in its infancy. Coins are traded on cash exchanges, through contract-for-difference (CFD) offerings and directly via peer-to-peer connectivity. Valuation models are exceedingly unique, with primary market drivers being industry rumors, governmental regulation, mainstream adoption and even nefarious hacking activities.
Despite their unconventional standing, the cryptocurrency market capitalisation has grown exponentially over the years. As of April 2021, the aggregate crypto market capitalisation topped US$2 trillion. Dogecoin accounted for a significant portion of this figure, ranking in the top 10 coins with a market cap north of US$38 billion (April 2021).
Dogecoin's valuation model is multifaceted and rooted in a variety of underpinnings. In addition to industry regulation, mainstream adoption, hacking and rumours, DOGE's value relies greatly on public opinion. With no limit on how many coins may be created, scarcity and the conventional supply/demand relationship is moot. In its place, there is an opinion-driven, popularity-based pricing model. Essentially, the price and value of DOGE relies on public opinion.
During the cryptocurrency boom of 2020/21, DOGE benefitted from an extremely positive public image, much of which came from Twitter. Below are few tweets from influencers that fostered positive market sentiment.
Elon Musk, Tesla CEO
Over the years, Musk has been a fan of DOGE, at one point tweeting that "Dogecoin is the people's crypto." In a 14 April 2021 tweet, Musk posted an image of the Joan Miro painting "Dog Barking at the Moon" with the caption "Doge Barking at the Moon." Following the tweet, prices of DOGE exploded to all-time highs, posting a rapid 100% gain.
Snoop Dogg, Rapper/Entrepreneur
During an 8 February 2021 rally, Snoop Dogg fueled online sentiment by simply tweeting "Snoop Doge." The tweet gained widespread media attention and is credited with aiding DOGE in its run to 8 February record highs.
Mark Cuban, Investor
As owner of the NBA's Dallas Mavericks, Cuban decided to begin accepting DOGE as payment for the team's merchandise. In a 13 April 2021 tweet, Cuban gave an update on the venture; "FYI, the Mavs sales in @dogecoin have increased 550pct over the past month. We have now sold more than 122k Doge in merchandise! We will never sell 1 single Doge ever. So keep buying." His tweet came during a strong run-up in DOGE prices, which posted a weekly gain of 333%.
The COVID-19 pandemic was a turning point for cryptocurrency values. In the midst of unprecedented social and economic uncertainty, the crypto asset class experienced explosive gains throughout 2020 and the first quarter of 2021. In the face of dovish monetary policy from the world's central banks, the likes of Bitcoin, Ethereum, Ripple (XRP) and Dogecoin posted extraordinary gains.
In 2020 and early 2021, DOGE saw frequent record highs and strong performance. Here are a few of the highlights:
- For 2020, DOGE rallied from 0.0020 to 0.0049, a gain of 145%.
- Early 2021 brought a string of successful months. Dogecoin realised strong performance during January (+683.72%), February (+29.35%) and March (+12.22%). April extended the trend, with values climbing (+390.62%) through the first three weeks of the month (1-21 April).
- 16 April 2021 proved exceptionally robust, as DOGE doubled its value in 24-hours.
- From 1 January 2021 to 20 April 2021, DOGE rallied from 0.0047 to 0.3050, a gain of 6389%.
Past performance is not indicative of future results
Although Dogecoin experienced bullish participation throughout 2020 and early 2021, it can be an extremely volatile asset. During July of 2020, the "TikTok Challenge" sent prices higher by 71% in 24-hours. This was not an isolated incident, as similar price action occurred on 28 January 2021 (+340%), 15 April 2021 (+50%) and 16 April 2021 (+100.31%). However, DOGE has also exhibited a propensity to crash, as occurred on 30 January 2021 (-39.54%), 17 April 2021 (-22.61%) and 20 April 2020 (-22.65%).
Past performance is not indicative of future results
Ultimately, DOGE's distinct market drivers are capable of generating sudden periods of enhanced volatility. From a timely tweet to a rumour of pending regulation, Dogecoin has a track record of extreme price action. As a result, some industry insiders have dubbed DOGE a viable mode of exchange but not a suitable store of value. In response to April 2021's volatility, Adan Zadikoff, the Chief Operating Officer of crypto wallet company BRD, had this to say:
"My guess is that it [rally] won't last, especially for something like Dogecoin, which was never meant to be a payment system or a store of value. Yes, you can make a quick buck if you time it right, but timing the market is a terrible thing to try to do."
Like most other cryptocurrencies, Dogecoin operates as an open source, decentralised peer-to-peer mode of transfer. DOGE relies upon blockchain technology to facilitate transactions and conduct day to day business. Despite these similarities, however, it is a crypto asset all of its own. A lower hashrate promotes efficient mining and faster block times, which speeds up transactions exponentially. These attributes make DOGE an attractive product for many in the cryptosphere.
Perhaps Dogecoin's greatest asset is its standing as a pop-culture phenomenon. From the Shiba Inu meme mascot to a community of vocal celebrity backers, DOGE enjoys a social standing that few cryptos can rival. Its public profile has proven to be a positive market driver, as celebrity tweets have repeatedly driven bullish participation to the market. DOGE has also fallen prey to rapid sell-offs, prompting many to consider it a speculative instrument or mode of transfer, not a store of value.
On a long-term basis, it's difficult to forecast where Dogecoin will be in the years and decades to come. With DOGE's unlimited supply, pricing volatility and dependence upon social media buzz, the future of the coin remains uncertain. When coupled with broader questions pertaining to the role of cryptocurrencies in finance, Dogecoin could go mainstream or fade away―only time will tell.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
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