Dogecoin Is Just a Game, So Make Sure You Know the Rules

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If you think cryptocurrencies are silly, you’ll think Dogecoin (CCC:DOGE-USD) is absolutely ridiculous. If you think cryptocurrencies will drive a bright future of decentralized finance…well, you might still think Dogecoin is absolutely ridiculous.

A stock image of a gold Dogecoin (DOGE) on a green textured background.

Source: Shutterstock

This is a cryptocurrency conceived as a joke based on an internet meme. It’s a cryptocurrency with basically zero interest from developers. It’s a cryptocurrency that already blew up once, and whose narrow use case no longer even exists.

And yet Dogecoin, as I write this, has a market capitalization of $6.5 billion. It’s rallied 793% so far in 2021 alone.

The obvious question is why. The obvious answer is that Dogecoin is a bubble, full of speculators who believe they will be able to buy the coin and dump it on a “greater fool.”

That “greater fool theory” basically is the bull case at this point. Of course, that theory works until it doesn’t.

The History of Dogecoin

It bears repeating: Dogecoin was created as a joke. It was a way to poke fun at the proliferation of so-called “altcoins” at the time. As the Wall Street Journal put it, founder Billy Markus “set out to create a coin so ridiculous it could never be taken seriously.”

The coin was based on an internet meme of a Shibu Inu. And while Bitcoin (CCC:BTC-USD) was designed with a cap of 21 million coins, Dogecoin originally started with 100 billion. The figure is even higher now.

Indeed, save for the higher cap, Dogecoin is basically a copy of Bitcoin. Markus took that crypto’s open-source code and hit CTRL+f, replacing “Bitcoin” with “Dogecoin.”

The crypto soon took off, becoming popular on Reddit. But the party didn’t last for long.

Dogecoin drew the attention of a crypto exchange called Moolah, run by a man who called himself Alex Green. Because Dogecoin mining was not particularly difficult or expensive, Green gave the currency away at will. Other holders pooled their resources to sponsor a NASCAR car, and to raise money for charity.

But Moolah wound up stealing thousands of dollars from users. Green turned out to be a serial fraudster named Ryan Kennedy. (Kennedy is now in prison.)

The community that had kept the joke going took a huge hit, and so did the Dogecoin price. As recently as late October, Dogecoin was trading for barely one-quarter of a penny.

What’s The Use Case?

The problem with the collapse of Dogecoin is that it took the wind of the sails out of the ecosystem. When the crypto was popular a few years back, it was used for a tipping system on Reddit. That, too, collapsed in scandal.

That essentially was the only use case for Dogecoin. Once gone, the utility of the platform vanished.

So one of the core problems at this point is that there really is no ecosystem. There aren’t the myriad applications running on other altcoins like Ethereum (CCC:ETH-USD) or Ripple (CCC:XRP-USD). Dogecoin is basically Bitcoin, but with no cap and, as Josh Enomoto pointed out on this site, a potential double-spend problem.

In other words, Dogecoin simply isn’t useful. Yes, it can be used to exchange other cryptocurrencies, but it’s not available on Coinbase, for instance. The utility is limited.

The 2021 Pump

And yet, right now the coin has a market capitalization of over $6.5 billion. What’s going on?

Simply put, traders are having a field day. Truthfully, I’m not even sure they can be called traders. Traders might have a short-term focus, but there’s usually some sort of logic underpinning that focus. Maybe it’s technical analysis, or perhaps a catalyst that will drive a quick move.

That’s not the case here. This is just speculators buying a cryptocurrency either because they think someone else will pay more — or as Dogecoin’s founder termed it, “for sillies.

It’s a game. Most of the buyers know that. Tesla (NASDAQ:TSLA) chief executive officer Elon Musk knows that. This is not Bitcoin or Ethereum, where there is at least the possibility of financial evolution.

But anyone who wants to play needs to understand that core fact. It’s obvious from a quick Google search that some don’t.

The questions surfaced by the search engine highlight that problem. “Will Dogecoin reach $1?” Well, it would have a market capitalization well past $100 billion, which seems unlikely.

“Can Dogecoin hit $10?” At that point, Dogecoin is worth more than $1 trillion. Crazier things have happened in this market, and a round-number price target is as good as any, but a $1 trillion valuation for this game seems a bit much.

The point is that no one really knows where this game goes, or how it ends. So if you’re going to play, do it with fun money — not as an investment.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for and other outlets. 

The post Dogecoin Is Just a Game, So Make Sure You Know the Rules appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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