Why Dogecoin Is No Longer a Joke Cryptocurrency

How the meme-inspired cryptocurrency became an Elon Musk obsession

Forget the Year of the Ox — 2021 is rapidly shaping up to be the Year of the Doge, a cryptocurrency based on the internet meme of a Shiba Inu dog with a less than stellar command of English, hence “doge” and not “dog.” Nowhere has this development been cheered on more than on Elon Musk’s Twitter feed.

On February 7, the Tesla CEO — and arguably the world’s most powerful influencer — tweeted, “Who let the doge out?” Later that same day he followed with, “No highs, no lows, only Doge.” On February 21, he cryptically tweeted “Dojo 4 Doge.”

The cryptocurrency market has been quick to react to the flurry of Musk’s Dogecoin-related tweets: On February 8, Dogecoin rallied 37% within a 24-hour span to a record high of 8.5 cents. As Matt Levine, author of Bloomberg’s “Money Talks” column recently mused, “the way finance works now is that things are valuable not based on their cash flows but on their proximity to Elon Musk.”

Owing to its meme-inspired mascot, Dogecoin is usually considered a joke currency. But its current market cap of $6.4 billion is twice that of AMC Entertainment, another company that got caught up in the recent meme-stock mania.

In the first week of February, Musk tweeted an informal poll in which his followers selected Dogecoin as the currency of the future. It is impossible to tell how sincere Musk is in his Dogecoin advocacy. Tesla, after all, earlier this year invested $1.5 billion in bitcoin, not Dogecoin. And the company said it will soon accept bitcoin, not Dogecoin, as payment for its products.

But in light of Dogecoin’s recent resurgence and growing relevance in the cryptocurrency markets, here’s a primer to understand the cultural and economic significance of the internet-friendly, meme-inspired altcoin that first emerged as a joke back in 2013.

Dogecoin launched on December 6, 2013, using the base code of Litecoin, which itself is an offshoot of bitcoin. It was developed by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system as a joke inspired by the Shiba Inu dog meme, which also dates back to 2013. The meme typically consists of a picture of a Shiba Inu dog accompanied by multicolored text in comic sans font in the foreground. The text, representing a kind of internal monologue, is deliberately written in broken English.

Just like its mascot, the Dogecoin brand is fun, warm, and fuzzy.

Dogecoin is different from other cryptocurrencies because it is essentially a brand. As I’ve written before on brand storytelling, successful brands place their message into a customer’s worldview and make them feel good about themselves. Dogecoin’s creators made the altcoin as a meme crypto for people who didn’t care about traditional cryptocurrency but still wanted in on the fun. Even within the realm of cryptocurrency as a whole, Dogecoin differentiated itself through its “meme-y” ethos.

Its reputation as a feel-good currency was driven by feel-good acts encouraged by the community. On January 19, 2014, a fundraiser was established by the Dogecoin community to raise $50,000 for the Jamaican Bobsled Team, which had qualified for but could not afford to go to the Sochi Winter Olympics. The fundraiser inspired the foundation, led by Eric Nakagawa, to collect donations to build a well in the Tana river basin in Kenya in cooperation with Charity: Water. On March 25, 2014, the Dogecoin community successfully raised 67.8 million Dogecoins (around $55,000 at the time) in an effort to sponsor NASCAR driver Josh Wise.

Just like its mascot, the Dogecoin brand was fun, warm, and fuzzy.

In his book, The Information, James Gleick wrote that memes have embodied the evolution of information. “In the competition for space in our brains and in the culture, the effective combatants are the messages. The new, oblique, looping views of genes and memes have enriched us.”

When viewed through this cultural prism, “Dogecoin is best thought of as a cultural product, rather than a financial asset,” writes Jason Potts, professor of economics, RMIT University, and Chris Berg, senior research fellow and co-director, RMIT Blockchain Innovation Hub, RMIT University. “The reality is few cryptocurrency users hold it as a serious investment or to use in regular transactions. Instead, to own Dogecoin is to participate in a culture.”

The viral contagion of the GameStop and Dogecoin frenzy is fascinating because we witnessed to what extent memes are capable of moving markets. It was not only the spread of an idea, but the spread of behavior.

Ellie Rennie, professor RMIT University, Melbourne, categorizes the rise of meme coins as “playful infrastructures.” She writes that developers of decentralized finance apps (DeFi) “use memes to capture attention and drive users to discussion boards that function as knowledge clubs. In order to capitalize on these applications, you need skills in crypto platforms and finance concepts, but also a gamer mentality.”

As explained in this post on the psychology of memes, we witnessed to what extent memes are capable of moving markets with the viral contagion of the GameStop frenzy. It was not only the spread of an idea, but the spread of behavior. While the community at r/wallstreetbets is hardly a monolith, members stretched their dollars and humor to hang on to strands of an abstract network that, together, experienced the rush of understanding the language, deciphering the slang, and reveling in self-deprecating humor.

With Dogecoin it’s a similar phenomenon: Dogecoin founder, Billy Markus, told the Wall Street Journal, “The idea of dogecoin being worth 8 cents is the same as GameStop being worth $325, it doesn’t make sense.” The idea of a joke-currency becoming a trending market asset is amusing due to the irony. “Fate loves irony,” Musk said during a chat on the invite-only social media platform Clubhouse. “The most entertaining outcome and the most ironic outcome would be that Dogecoin becomes the currency of Earth in the future.”

Most altcoins, cryptocurrencies other than bitcoins, are deflationary. This means there is a hard cap on the number of coins that will ever be in existence. Bitcoin, for example, with its hard cap of 21 million coins will not have any more new bitcoins come into existence after 2040.

This constraint of having a scarce resource leads to hoarding, as the perceived real value of the currency increases over time. The hoarding activates a deflationary cycle where prices for things get lower while consumers continue to save in anticipation of even lower prices.

In contrast, for a fiat currency like the U.S. dollar, the central bank can issue new money at any time and there’s no limit on how much money they can create. In this aspect, Dogecoin is closer to fiat than bitcoin, which is often considered an asset class akin to digital gold.

While Dogecoin is an inflationary currency, it can still experience heavy price volatility due to the presence of “Dogecoin whales” — the biggest of which holds 28% of circulating supply, worth $2.1 billion, as reported by the Wall Street Journal. Elon Musk weighed in on whales by suggesting that Dogecoin’s uneven concentration in the hands of a few holders is an obstacle behind his full support of the currency.

Cryptocurrency sleuths suspect that Robinhood, due to its role as the custodian of its customers’ crypto holdings, could be the whale in question. Robinhood, which has become everyone’s favorite punching bag, declined to either confirm or deny its role as the suspected whale. Even if Robinhood is the entity that’s holding the chunk of Dogecoins on behalf of its customers, it is not as much a concern, rather an indication of ecosystem immaturity, as explained in an open letter by Dogecoin developer Patrick Lodder.

Online exchanges such as Robinhood are crucial for wider cryptocurrency adoption because they help investors skip the technical know-how required for holding their crypto assets in their own private wallets. Earlier in February, Coinbase, the largest cryptocurrency exchange in the U.S., announced plans to go public at a higher initial valuation than any other U.S. tech company since Facebook. It is another signal that cryptocurrencies are gaining widespread acceptance among institutional investors. Matt Levine described the debut as one that will transform Coinbase from “big startup doing crypto” into “venerable institution legitimizing crypto.”

Translation: Dogecoin is no longer a joke.

While there might be grounds to support the credibility of Dogecoin as a complementary currency, determining so requires a thorough study of its implications as a financial instrument. As an inflationary currency, Dogecoin is not designed to surge like bitcoin, which has a limited supply and is considered an artificially scarce resource.

Dogecoin is no more a joke than memes are empty harbingers of “lols.” As we’ve experienced in the past few weeks, memes are able to move markets beyond anyone’s expectations. After all, we are emotional beings, and social media, especially Reddit, has managed to strum our emotional strands in such a way that cultural assets appear to levitate and gravity seems to be pulling financial nuances beyond our purview. Right now, to invest in Dogecoin is to participate in the cultural zeitgeist. That in itself could be considered a worthwhile investment for the meme-culture aficionados.