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Can Substance follow Hype?

Can Substance follow Hype? Doge Dogecoin Shiba Inu

A Deeper Look Into Dogecoin and the Future of Finance

When I first heard of Dogecoin, my reaction was to reject it as a joke. I was annoyed at the concept. I felt that I was supporting true innovation with Bitcoin as well as Ethereum. When I look for other crypto projects to invest in, I note that there is risk involved and that I had better put any funds behind a strong development team with a real-world product. As a relatively experienced investor, I, of course, wouldn’t touch a joke with a 10-foot pole. Well, is that all there is to Dogecoin, or is there something real behind the hype?

Price of Dogecoin

The hype is real. If you are reading this, you already have some idea, but here’s a breakdown:

Jan 4, 2014: $0.000367
Jan 2, 2015: $0.000186
Jan 2, 2016: $0.00015
Jan 7,2017: $0.00022
Jan 6, 2018: $0.015 (Bitcoin/Altcoin bull run)
Jan 3, 2019: $0.0023
Jan 4, 2020: $0.0023
Jan 1, 2021: $0.004
Feb 1, 2021: $0.04
Mar 1, 2021: $0.05
Apr 1, 2021: $0.054
May 1, 2021: $0.36
May 8, 2021 1 AM: $0.73
May 8, 2021 6:30 PM: $0.64

FOMO (fear of missing out) is a great driver of prices, and if it’s something you’re invested into and a believer of, it’s great to see it catching on with others. But it can also be dangerous; this article is not a recommendation to stop reading now and buy Dogecoin.

For an article about how to overcome the emotions of trading, check out this read.

What is Dogecoin?

Doge inner monologue meme

The original “Doge” inner monologue image. Courtesy of Wikipedia

Dogecoin is a cryptocurrency created by software engineers Billy Markus from IBM and Jackson Palmer from Adobe. They decided they wanted to create a peer-to-peer payment system that could reach a broader demographic than Bitcoin. Its code was based on an existing cryptocurrency — Litecoin. Litecoin itself was based on Bitcoin, with a focus on speed as well as faster/more private payments. Dogecoin was officially launched on December 6, 2013.

Earlier that year, a Japanese kindergarten teacher posted a meme of her pet Shiba Inu (above). This became one of the most famous memes of all time. As a joke, Markus and Palmer named their cryptocurrency after the meme.

Like Bitcoin, the network is secured by Proof-of-Work mining equipment, where computers perform complex math. But it uses a different kind than Bitcoin, called “Scrypt,” which is also used by Litecoin (LTC) and Verge (XVG).

The Present Hype

Numerous celebrities have gotten excited about Dogecoin, contributed to the hype, and millions of retail traders are betting on the coin, buying Doge as their first cryptocurrency. This includes some of my co-workers and neighbors. What is occurring is interesting, because I am not aware of a similar event bringing cryptocurrency awareness (and investing) to millions that didn’t center around Bitcoin. As a speculative asset, over 30 billion USD worth has been bought/sold on exchanges (not including Robinhood) in 24 hours prior to this writing — May 8th, 2021. This is nearly half as much as Bitcoin ($66 Billion).

Elon Musk, who is going on SNL tonight (May 8th), has been the biggest driver over the past year, tweeting Dogecoin to prominence with his 50 million+ Twitter followers. He’s even inspired the nickname “the Dogefather” and a ton of memes, some he made himself. Aside from Elon and Crypto Twitter, other celebrities embracing Dogecoin have included: Mark Cuban, Guy Fieri, Snoop Dogg, Gene Simmons and Meek Mill.

Mark Cuban even took it a step further and his NBA team, the Dallas Mavericks have started accepting Dogecoin as a payment method through BitPay in March 2021. As of April 17th, 2021, the Mavericks had processed $122,000 USD in sales with the crypto, boasting themselves as the world’s top Dogecoin retailer.

Budweiser, Snickers and Slim Jim piggybacked onto the Twitter hype, doing campaigns of their own. The Oakland Athletics also sold 2 baseball tickets for Dogecoin last week.

Over the past few days, to capitalize on the increased demand, more crypto exchanges have started offering Dogecoin trading, specifically Gemini and eToro. Indian crypto exchange WazirX and infamously Robinhood had service shortages due to high trading volume. WazirX’s systems wrongly interpreted that the spike in trades was a cyberattack!

The Future

Ok so, this will trigger some people. This is a heated subject on Twitter — with the Doge army on one side, swearing to “never sell.” Bitcoin maximalists and traditional financial institutions, on the other side, are calling scams.

Look, I want to first say that both sides have valid points. A number of cryptocurrencies have been known to “pump” and then “dump”. Some of these are deliberate scams where a group of investors buys a ton of crypto, the price rockets, and a promotion campaign is done on social media to get massive returns. Those holding then exit and most who newly invested lose money. Some lose a LOT of money, fueled by desperation and greed by “that one 17-year old” who made $5 million overnight.

Dogecoin seems to have “pumped” and “dumped” over and over and over again, even before this historic run. Unlike scams, Dogecoin has been around for over 7 years and continues to have a following, even after heavy corrections. Obviously, the short-term returns are attractive, and it does appear that there will be a significant correction at some point, as one would expect with any asset thousands of percent over a short-period of time. Or any asset whose interest is fueled by hype and celebrities. This may very well be the long-term fate of Dogecoin.

My Unanswered Questions:

What if something else is happening here? Can a joke ever be taken seriously? Can humor actually bring innovation? What would happen if enough developers were incentivized to write code to enhance its payment features? What if enough miners are incentivized to secure the network? What if more companies decided to get on board with the hype to bolster their own brand and accept Dogecoin as a payment, adding to its value? I’ll leave you with that and the technology hype cycle, below:

The Technology Hype Cycle

The technology hype cycle is also known as the Gartner Hype cycle. For a deep dive, click the link above. Of course, not everything survives through all phases and is actually adopted as a technology. But if it is successful, this seems to be the sequence of what occurs. I break it down more briefly here:

  1. New technology:The media picks up on the existence of a new technology which may not exist in a usable form yet. Nonetheless, the publicity leads to significant interest. At this point, people working on research and development are probably not making any money from it. Lots of mistakes are made. If it seems like something new will have a dramatic payoff, it probably won’t last. If it seems we have found the perfect use for a brand-new technology, we may be wrong.
  2. The peak of inflated expectations:A few well-publicized success stories lead to inflated expectations. Hype builds, and new companies pop up to anticipate the demand. There may be a burst of funding for research and development. Scammers looking to make a quick buck may move into the area. It’s here that we overestimate the future applications and impact of the technology.
  3. The trough (the depression between waves) of disillusionment: Prominent failures or a lack of progress break through the hype and lead to disillusionment. People become pessimistic about technology’s potential and mostly lose interest. Reports of scams may contribute to this, as the media uses this as a reason to describe the technology as a fraud. If it seems like new technology is dying, it may just be that its public perception has changed, and the technology itself is still developing. Hype does not correlate directly with functionality.
  4. The slope of enlightenment:As time passes, people continue to improve technology and find better uses for it. Eventually, it’s clear how it can improve our lives, and mainstream adoption begins. Mechanisms for preventing scams or lawbreaking emerge.
  5. The plateau of productivity:The technology becomes mainstream. Development slows. It becomes part of our lives and ceases to seem novel. Those who move into the now saturated market tend to struggle, as a few dominant players take the lion’s share of the available profits.

This article is not investment advice, nor does it take your personal financial situation into account. Never invest more than you are willing to lose, and don’t buy Bitcoin or other investments on credit. I write about my observations and personal opinions with the purpose to share what I have learned with others.

Disclosure: I am invested in Bitcoin, Dogecoin and other cryptocurrencies.

Author

Alexandre Lores is a personal finance writer from Tampa Bay, Florida, with the goal to help one million people achieve financial freedom. He has spent over five years studying markets and economics, finding Bitcoin in 2017 and never turning back. He frequently appears on TV and in online news articles and is a regular Twitter spaces host.

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