Doge in Times of COVID — The High Risk of Cryptocurrencies
What do Elon Musk, Snoop Dogg, Mark Cuban, and Jake Paul have in common? They all backed a cryptocurrency named after an internet meme.
But how did a “joke” currency based on the “Doge” meme from 2013 become an investment craze worth billions of dollars — that too at a time of global pandemic and economic uncertainty? Staying true to its somewhat bizarre roots, the Dogecoin story in 2021 is quite insane.
The Year of the Doge
Keeping aside the story of the global COVID pandemic, 2020 can be considered as the year of Bitcoin — the original cryptocurrency zoomed to the dizzy heights of $63,000 exchange rate, an all-time high. That came at the crest of a 300% surge in valuation that started in Q1 that year.
But what Bitcoin achieved pales in comparison to the Dogecoin trajectory in 2021 — a meteoric 14,000% surge in just five months, resulting in a market capitalization of $84 billion and climbing. That is more than the valuation of major corporations like Ford and BP!
Elon Musk is widely considered the chief architect of this surge. His endorsement of Dogecoin carries extra weight, given the recent history of Tesla spending billions acquiring Bitcoin assets and accepting payments from customers in crypto.
Parallels with GameStop
2021 is also the year of the little guy — the amateur investors finally finding a way to stick it to the Wall Street suits. The GameStop saga shows the risks and rewards of small-time investors coming together online to drive up the valuation of underperforming stocks.
Cryptocurrencies like Dogecoin present a promising target to such investors looking for similar investment opportunities with high speculative potential. A lot of media attention has been driven to Dogecoin by Elon Musk’s highly publicized appearance on SNL.
But the cryptocurrency’s presence in the limelight also coincides with the arrival of stimulus checks worth $1400 to over 127 million households in the US. At least a small chunk of that $380 billion stimulus package from Washington may have ended up in the recent rise of Dogecoin.
All Hype and No Substance?
The GameStop stock valuation had become vastly inflated by the investor’s actions. But in the absence of strong business foundations or long-term outlook (the company is in almost terminal decline), that insane valuation could not last very long.
Dogecoin is an even more extreme example of unbridled speculation. Unlike Ethereum, which does have useful applications beyond pure investment, Dogecoin has no intrinsic value. A massive 14,000% rise in valuation driven purely by hype is unsustainable.
The earliest investors stand a chance to make some significant profits — many could even become millionaires. But sooner or later the inevitable corrections in the valuation will hit many small-time investors hard.
This is a timeless story that has repeated itself throughout investment bubbles in history — there is a high chance of it playing out in the case of Dogecoin, and other similar cryptos.
