Dogecoin – Does It Pass The Pedigree Test?
Whenever you look at the valuation of any asset, you always have indicators favouring and indicators against investing in that asset. However, the fascinating thing about the crypto space and Dogecoin specifically is the complexity in evaluating the indicators.
The anti-Dogecoin case would seem very simple. This is a coin that was created as a joke. Literally.
It’s a meme coin.
The creator of Dogecoin said that it’s a meme coin, that it’s a joke. Something that they did ‘tongue-in-cheek’ to mock Bitcoin.
The price is up dramatically and in part due to an Elon Musk tweet “Doge barking at the moon” with a picture of a painting by Joan Miró on 14 April. That pushed the price from $0.10 to $0.45 on 16 April. The price surge took Dogecoin up to ranking fifth in the top 10 cryptocurrencies by market capitalization.
However, Dogecoin is not the first cryptocurrency to see a dramatic price increase. Many cryptocurrencies have seen tremendous surges in prices, but you can justify them. With Dogecoin, it is tough to explain the current valuation.
Dogecoin is inflationary by design. The supply isn’t limited which places huge downward pressure on the coin. It is, effectively, the opposite of what Bitcoin is. Also, the top 10 Doge addresses, according to coin metrics quoted by Coindesk, account for 41.3% of all circulating Dogecoin and are held by ten individual addresses. That is highly concentrated. These are some very, very, very negative indicators.
Dogecoin has been an instrument for pump and dump schemes in the past. It is reported that this rally has been controlled by a single entity that has accumulated at least “$1.3 billion worth of Dogecoin. Whatever the motive, the most recent rally has propelled Dogecoin beyond meme-coin status.
The founder of Cardano agrees that there are some negative indicators. He says Dogecoin has been a blight on the crypto community since the beginning of crypto. While people appear to take it seriously, it has no smart contracts, and it has no development team. If you have a problem where your coin isn’t transferring, there’s no number you can call. He went on to say that if this bubble gets bigger and pops, a lot of people are going to lose money. More specifically, a lot of retail investors are going to lose money.
Spotlight On Cryptocurrency – Who Let The Dogs Out?
Is There A Network Effect In Play?
With all that said, the reality is that when the price action starts moving dramatically in a particular direction, and it gets a great deal of publicity, there are potentials for network effects.
Network effect generally needs two parts. It’s not just people buying it. It needs to have application development. It needs to be an ecosystem. Dogecoin has one side of the ecosystem. It has a lot of people owning it.
It could reach a point of scale where it becomes so widely held that someone wants to do something interesting with it. You can’t rule that out.
What happens if somebody decides to use that chain to connect a community, and they choose to use it? Maybe somebody has. Perhaps somebody bought a whole load of Dogecoin to control an entire crypto chain simply because they can do it.
They could use it for community tokens. It’s possible, for example, that Tesla has decided to use Dogecoin as their crypto. Their tokenised system.
Know What You Are Buying
So there could be a much bigger picture for Dogecoin. Or maybe it is just rampant speculation and the speculative part of the cycle is now starting to get underway. Speculation driven by a lot of FOMO surrounding a meme that is getting headlines because of the price action. That, coupled with the fact that it is an adorable dog!!
When the reason you’re buying something and the use case for it in the digital asset space is “I believe that the price will go up because the price has already gone up and I’ll be able to sell it to someone else for a higher price”; That’s not a very strong use case.
It looks, tastes and smells a lot like gambling.
That said, there is likely a money-making opportunity in all of this. Just don’t take risks you can’t afford because you think it’s your one chance.
It’s not the ‘one chance’.
There’s a whole universe that’s being built in front of us. Many things are changing. Economic models are being completely rewritten in front of our eyes. Anybody who thinks they understand what’s going on is kidding themselves.
As ninja traders, we’ve learned not to pass judgment on speculative moves in the market. Those that do are generally wrong.
So if you are interested in Dogecoin, only take a risk at a level you’re comfortable with. Do your homework. Understand that this is something that has, in the usual construct, no value.
Participate in the glory of a full speculative frenzy in the middle of an exponential rise of an asset class. However, be mindful that speculation will run riot, and there will be the downward counteracting move to that speculation.
