For more than a decade, cryptocurrencies have captivated the world of finance. From the industry standard Bitcoin (BTC) to cutting-edge alternatives such as Polkadot (DOT), virtual currencies have moved from being peripheral to mainstream assets. However, the transition was anything but smooth. Despite periodic scandal, fraud and governmental intervention, cryptocurrencies evolved from the realm of science fiction to being a staple of commerce.
The tipping point for cryptocurrencies becoming truly adopted by traditional finance came during the coronavirus (COVID-19) pandemic of 2020/21. Over the first year of the pandemic, a majority of cryptos posted explosive gains while the values of conventional monies lagged. A prominent example of this phenomenon was illustrated by the uptick in Bitcoin. For 2020, the BTC/USD rose upwards of 400%. Early 2021 proved even more bullish, with the BTC/USD more than doubling within the year's first two months.
BTC's steep appreciation during 2020/21 brought heightened attention to cryptos, namely many of the leading altcoins. Among these offerings is Dogecoin (DOGE), a relatively new digital currency that became a household name in early-2021. During the first two months of 2021, DOGE jumped more than 1000%, reaching new heights amid the COVID-19 crypto boom. While there are key differences in the functionality and valuation models of BTC and DOGE, both are leaders of the cryptocurrency asset class.
What Is Dogecoin (DOGE)?
Developed in 2013 by IBM developer Billy Markus and Adobe data scientist Jackson Palmer, Dogecoin was initially conceived as a parody of cryptos and alternative to Bitcoin. Shortly after its launch, DOGE gained online popularity as its Shiba Inu dog mascot became the center for countless internet memes. The Shiba Inu's pop-culture status brought added attention to Dogecoin. Ultimately, the phenomenon boosted the crypto's popularity among Reddit traders, celebrities and institutional investors.
According to Dogecoin's website, DOGE is an "open source peer-to-peer digital currency, favored by Shiba Inus worldwide." More specifically, DOGE boasts the following attributes:
- Completely anonymous
- Accessible via smartphone, website, or desktop computer
- Instant transactions
Essentially, DOGE functions as a mode of exchange between individuals. It is promoted as being ideal for sending money, "tipping" online content providers or trading for other cryptos and conventional currencies.
What Is Bitcoin (BTC)?
Bitcoin is a decentralised digital currency used to facilitate peer-to-peer transactions. Created in 2009 by anonymous programmer Satoshi Nakamoto, BTC is the benchmark of the entire cryptocurrency asset class. It promotes the following features to its users:
- Easy mobile payments
- Secure transactions
- Varying degrees of privacy
- Customisable fee schedule
- Relatively fast international transfers
Since inception, BTC has been a controversial topic. Although technically a cryptocurrency, regulators have periodically asserted that BTC is both a security and commodity. According to a November 2020 statement by acting U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton, Bitcoin's standing is clear with the U.S. government:
"We [SEC] determined that Bitcoin was not a security, it was much more [a] payment mechanism and store of value."
However, not all authorities view Bitcoin as the SEC does. For instance, the Central Bank of Ireland (CBI) claims that Bitcoin's pricing is too volatile to be considered a store of value, a stable unit of account, or a medium of exchange. The CBI clearly states its opinion on BTC:
"In general, Bitcoin is more like a very high-risk, speculative asset than a standard currency."
Due to its extraordinary value—upwards of US$50,000 per BTC as of 3 March 2021—Bitcoin is the premier target for crypto regulators around the world. While an altcoin such as DOGE may operate as a peripheral cryptocurrency, BTC receives a lionshare of media scrutiny, regulatory inquiry and institutional participation.
Dogecoin Vs Bitcoin: Similarities
At their core, both DOGE and BTC are intended for use as digital payment systems. The functionality of each allows the user to execute peer-to-peer transfers without the services of a bank. In order to accomplish this objective, Bitcoin and Dogecoin operate in a similar fashion with respect to blockchain technology and crypto mining. And, as the values of cryptocurrencies have grown, DOGE and BTC have become the target of governmental and regulatory intervention.
Since the introduction of Bitcoin, the blockchain has gained widespread popularity. Essentially, the blockchain is a digital ledger of transactions that is replicated and distributed across a vast network of connected computer systems. Each "block" consists of a collection of distinct transactions, with every new transaction being added to all participant ledgers. Accordingly, a decentralised, publicly-managed database is created; the process of blockchain growth and maintenance is called Distributed Ledger Technology (DLT).
In order to facilitate transactions, BTC and DOGE each utilise the blockchain and DLT technology. Dogecoin exists as a fork of the Luckycoin (LKY) blockchain. Luckycoin is a fork of Litecoin (LTC), which itself is a fork of Bitcoin. Given DOGE's blockchain lineage, it facilitates transactions much like Bitcoin does―as an open-source, decentralised network based on a consensus algorithm.
New DOGE and BTC are created and introduced into the cryptosphere through a process known as "mining." In cryptocurrency mining, participants use high-powered computers to solve the intricate math problems necessary for conducting transactions on the blockchain. Miners are rewarded with BTC and DOGE for their efforts.
As of 2020, Bitcoin miners received 6.25 BTC per block as compensation. Since 2013, Dogecoin miners have been rewarded with a set number of 10,000 DOGE per block. Although mining directly increases the supply of both BTC and DOGE, each coin is configured with different supply parameters. A maximum number of 21 million BTC may be mined; DOGE has no defined maximum and may be mined in perpetuity.
Another area where BTC and DOGE are alike is in the area of regulation. For more than a decade, Bitcoin has drawn the attention of governments and financial regulators around the globe. Amid 2020's epic BTC rally, regulators once again began questioning whether or not it was a currency or investment vehicle. U.S. President Joe Biden's 2021 nominee for SEC Chairman, Gary Gensler, had this to say on the topic:
"Bitcoin and other cryptocurrencies brought new thinking to payments but raised new issues of investor protection that we [SEC] still need to attend to. It's important for the SEC to provide guidance and clarity."
Gensler's statements suggest that increased future SEC cryptocurrency regulation is likely. This sentiment was echoed during the early-2021 scrutiny of DOGE and its viral presence online. Following January and Feburary's meteoric 1000% appreciation, DOGE and Tesla CEO Elon Musk came under fire from the SEC. Reports began to surface in late-February 2021 that an SEC probe was to be directed at Musk over DOGE related tweets from earlier in the year. In response, Musk tweeted:
"I hope they [SEC] do! It would be awesome."
For BTC and DOGE, increased government regulation is always a potential market driver. Should cryptos be re-classified as securities, or public discourse on cryptos be limited, each coin's pricing model would be significantly impacted.
Dogecoin Vs Bitcoin: Key Differences
Dogecoin and Bitcoin are alike in many ways, yet there are some key differences between the cryptocurrencies. Two of the largest reside in the areas of functionality and valuation. These discrepancies make BTC and DOGE unique from one another and are noteworthy items for traders, investors and crypto enthusiasts.
Even though Bitcoin and Dogecoin utilise the blockchain and are coded using the C++ programming language, they differ in the area of functionality. Below are two key trade offs between BTC and DOGE:
- Dogecoin has a block time of 1 minute, while Bitcoin has an average block time of 10 minutes. This fact ensures that DOGE transactions are much faster than those denominated in BTC.
- Dogecoin uses a "scrypt mining algorithm" that allows for lower hashrates, making it less energy intensive.
In short, DOGE offers quicker transactions and requires less resources to use than BTC. Due to these two factors, many cryptocurrency participants view DOGE as a superior mode of exchange.
The single greatest difference between Dogecoin and Bitcoin is how each is valued. At the root of this issue is the question of supply. DOGE has an uncapped, theoretically unlimited future supply; BTC is limited to a maximum of 21 million. As of February 2021, there were an estimated 113 billion DOGE in circulation, compared to roughly 18.5 million active BTC.
Individual pricing of DOGE and BTC are extremely diverse. During February 2021, the DOGE/USD posted an all-time high of $0.08 while the BTC/USD exceeded US$58,000. Subsequently, the 3 March 2021 market capitalisations for Bitcoin (US$951.6 billion) and Dogecoin (US$6.5 billion) also exhibited exceptional variance.
During the late-2020/early-2021 runup of cryptos, investors and pop-culture icons alike became vocal toward DOGE on social media. The aforementioned Elon Musk took to Twitter repeatedly touting Dogecoin, sparking public participation. In a tweet from 4 February 2021, Musk stated that "Dogecoin is the people's crypto." Following Musk's tweet, the DOGE/USD posted new all-time highs ($0.088) and finished the trading week of 1-5 February 2021 up 111.25%. By comparison, BTC posted a 17.25% gain for the week, largely ignoring the social media hype.
Note: Past performance not indicative of future results.
The wide gap in per coin value and crypto market capitalisation make Bitcoin and Dogecoin vastly different assets. Given BTC's high price, enormous market cap and longevity, it is viewed more as an investment vehicle and budding financial safe-haven. Conversely, DOGE's massive float, pop-culture image and ultra-low price frequently earn the coin a designation as being a speculative asset.
Although functionally very similar, Dogecoin and Bitcoin are unique crypto assets. For conducting transactions, DOGE is considered superior to BTC because of its speed and reduced energy footprint. However, BTC is accepted as the more financially stable of the two, featuring a longer history, a vastly larger market capitalisation and excessively higher per coin price.
For active crypto traders, each coin represents a unique collection of opportunities. Pricing volatility is evident in both, with periodic spikes and crashes common. Bitcoin and Dogecoin are subject to many of the same market drivers, including supply/demand, rumour and government regulation. As of this writing, it is unclear how these factors will play into the future valuations or mainstream adoptions of DOGE and BTC.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…