Dogecoin, a cryptocurrency invented as a joke, was worth as much as $55 billion on Friday, nearly tripling on the day and up 550% in the past week. At current levels, it’s worth about as much as Ford Motor (F) and Marriott International (MAR). The volume in Dogecoin and other cryptocurrencies has been so intense that it caused outages on Friday on Robinhood Crypto.
Dogecoin was created on a lark in 2013 by two software engineers from IBM and Adobe in their free time. It’s built on similar underlying technology to Bitcoin, but it’s got a particularly silly history. Its symbol is an image of a shiba inu. Dogecoin fans post memes on social media featuring the dog next to ridiculous phrases.
There is little that’s substantive behind the price jump. Dogecoin is particularly prone to wild speculative spikes, because there’s no real short-selling market to bet against the crypto, notes Matt Hougan, the chief investment officer of Bitwise Asset Management, which offers crypto funds. “Take the market cap with a big grain of salt,” he wrote in an email to Barron’s, because “the key constraint on speculative bubbles does not exist for dogecoin.”
Dogecoin’s rise fits into the recent pattern of social media narratives boosting high-risk investments that’s also been associated with GameStop’s enormous rise starting in January. Dogecoin was an early example of an online phenomenon that drew a community to the internet that then rallied around the asset. Their jokes became in-group social signifiers. Dogecoin’s most important proponent is Tesla CEO Elon Musk, who has written that it’s his “fav” cryptocurrency and regularly chimes in with silly, positive tweets about it. On Friday, Musk reacted on twitter to an image of a shiba inu in a dust cloud about to inundate the “global financial system”.
Luke Schaper, a 23-year-old recent college graduate from New Jersey, spent $1 to purchase 473 Dogecoin at .0021 cent each after opening a Robinhood account in 2019. After he got a job in 2020, he put another $17 into his bet, and then in January bought another $50. As Dogecoin rose, his friends kept telling him to sell, but Schaper–who said he was fine with losing the $68–decided to hold on. Now his silly little bet is worth real money. “It’s kind of surreal,” he said. “I clicked a few buttons on my phone, and I technically have $2,000.”
Schaper said he feels like his decision made sense, but he worries that some little-guy investors are in over their heads.
“When I see posts on Reddit where I see people put $30,000 in, it’s like you’re playing with fire,” he said. “It’s gonna crash eventually.”
The more-established crypto community is split on whether Dogecoin’s incredible rise is all in good fun, or a distraction for an industry now going mainstream. Exchange-operator Coinbase (ticker: COIN) went public this week, and its $67 billion valuation is based largely on the premise that crypto is ready for prime time.
Richard Byworth, CEO of cryptocurrency financial-services company Diginex (EQOS), said in a recent interview that his biggest current worry is that all this speculation will bring the wrong kind of attention. That includes parts of the nonfungible token market, which uses the infrastructure of cryptocurrencies to sell and authenticate art and collectibles. And it also includes Dogecoin.
“That’s the sort of thing that causes reputational issues,” he said.
Byworth is thrilled about the listing of Coinbase stock, and thinks it legitimates the industry more than almost anything that has come before. But the goofy side of crypto leaves him wary. “Our biggest problem is going to be about credibility and making sure that you don’t have regulators saying, ‘OK, we need to make an example of someone, let’s take that publicly listed company and make a big song and dance about it.’”
Others see some positives in the Dogecoin movement, though they don’t necessarily think it should be considered an investment in the same vein as Bitcoin. Hougan of Bitwise Asset Management told Barron’s that “the social aspect of crypto is meaningful.”
“Despite the silliness of Dogecoin, it does demonstrate the social nature of cryptocurrencies,” he said. “Cryptocurrencies are the first money that is native to the internet, and it is not surprising that some of the common features of the internet are part of its story, including online communities, viral growth, et cetera.”
That said, he sees Dogecoin’s move as part of the “excess” that sometimes bubbles amid progress in the industry. Bitwise offers an index-tracking product that tracks the 10 most valuable cryptocurrencies by market cap. But even though Dogecoin now ranks sixth, Bitwise won’t be buying it for the index fund.
“While the index tracks the 10 largest cryptocurrencies, it has longstanding rules in place that screen out assets that are not appropriate for institutional investors,” Hougan said. “Dogecoin currently fails a number of those rules, including our custody rules, and is therefore not eligible for inclusion in the index.”
Write to Avi Salzman at [email protected]
