What exactly is dogecoin? And why does it fluctuate in response to Elon Musk’s actions?
Over the weekend, the cryptocurrency dogecoin took a space trip to the moon and back after Elon Musk mocked it on Saturday Night Live and then announced on Monday that his company would consider it as legitimate payment for a lunar mission.
If you’re perplexed by that sentence, you’re not alone. However, continue reading for a primer on what is occurring.
To begin, what is dogecoin?
Dogecoin was developed in 2013 as a spoof of cryptocurrencies such as bitcoin by a pair of software developers at Adobe and IBM, respectively. Cryptocurrencies are a type of digital money that can be used to purchase goods and services online. The majority of them, like dogecoin and bitcoin, are backed by a blockchain, an encrypted distributed ledger of transactions.
Dogecoins, named after a Shiba Inu dog that was the target of an internet meme at the time, were initially traded for fractions of a penny by cryptocurrency enthusiasts and online jokesters. In early 2014, the first dogecoin exchanged hands was worth $0.001540753 US. Today, the same dogecoin is worth 50 cents in the United States, a gain of more than 32,000%.
Although dogecoin is essentially an offshoot of the bitcoin blockchain, it is not as stable as bitcoin and there is no limit on the amount of dogecoins that may exist, as there is with bitcoin.
“Unlike many other cryptocurrency ventures, dogecoin does not aspire to be anything other than the world’s most enjoyable currency,” Alex Thorn, head of research at TSX-listed investment management company Galaxy Digital, wrote in a research report last week.
How does this relate to Elon Musk?
Nothing, strictly speaking. However, Musk, who recently became the wealthiest individual in human history, is a cryptocurrency enthusiast. Musk joined the dogecoin bandwagon last year, ostensibly as a joke, but over the course of several months, his social media remarks about dogecoin lent it increasing credibility.
Dogecoin was first mentioned by him on Twitter in April 2019, when he referred to it as “my favorite cryptocurrency.”
Tesla, Elon Musk’s electric car company, became a significant influence on cryptocurrencies in general earlier this year, when it revealed that it would accept bitcoin as payment and would keep bitcoin as an asset on its books.
The company announced last quarter that it had already accumulated more than $1 billion in US dollars’ worth of bitcoin.
What transpired over the weekend?
Musk hosted NBC’s Saturday Night Live comedy show this past weekend, sparking rumors that he would discuss the cryptocurrency during his appearance.
Dogecoin’s price quickly climbed to a peak of around 73 cents US on Thursday, according to cryptocurrency exchange Coinbase.
Despite Musk’s character stating elsewhere in the sketch that dogecoin is “the future of currency” and “an unstoppable financial vehicle that is going to take over the world,” the currency sold off following the sketch’s airing, falling to about 40 cents US per doge in the early hours of Sunday morning. Edward Moya, a market analyst with foreign exchange company Oanda, said large blocks of doge stashed away.
“Twitter quickly shifted its attention to the numerous whale warnings indicating a steady abandonment of massive dogecoin bets during [the show],” he explained.
Then why is dogecoin once again ‘going to the moon’?
On Monday, Musk took the dogecoin in-joke a step further by tweeting about his space exploration company’s upcoming mission.
“SpaceX will launch the Doge-1 satellite to the moon next year,” Musk tweeted without further explanation.
Additional information was given in a press release issued by Canadian manufacturing and logistics company Geometric Energy Corporation. The company stated that it would use one of SpaceX’s rockets to launch a 40-kilogram satellite into orbit. According to the release, the company will fund the mission with dogecoin.
“This project will show how cryptocurrency can be used beyond Earth orbit and lay the groundwork for interplanetary commerce,” SpaceX vice president Tom Ochinero said. “We’re looking forward to sending Doge-1 to the moon!”
CBC News inquired as to how much dogecoin Geometric is paying for their room on the rocket. The question was not promptly responded to.
Following the announcement of the transaction, the cryptocurrency’s price increased significantly on Monday, reaching a high of 50 cents US at one stage. However, by late afternoon, doge were trading at about 46 cents, significantly lower than they were prior to the show’s airing.
What comes next?
This is the multibillion-dollar conundrum. (Or, as Thorn put it in the eponymous meme’s style: “Quite Valuable. Numerous coins “‘)
Dogecoin’s overall value has surpassed $65 billion US due to fervent trading. This places dogecoin as the world’s fifth most valuable cryptocurrency.
It is more valuable than Canadian telecommunications firm Telus, supermarket chain Loblaws, and retail chain Canadian Tire combined.
And yes, the sky could be the limit. Musk’s wealth means that he can afford to wait to see what happens with doge.
However, some financial analysts challenge Musk’s responsibility in commenting on the cryptocurrency, given his ability to influence its price.
“I believe he is having a good time… He is free to say whatever he wants about dogecoin or other cryptocurrencies, well conscious that his mere presence affects the price “James Angel, an associate professor of finance and cryptocurrency at Georgetown University’s McDonough School of Business, agreed.
“Anyone interested in playing the Elon Musk game should be prepared to lose their entire investment.”
According to Moya of Oanda, Musk’s presence could mark the height of dogecoin’s popularity.
“At best, Dogecoin’s fate will resemble that of GameStop, with a devoted retail army that remains a believer in the long run,” he said.
Others, including Musk, are persuaded that dogecoin is here to stay.
“Doge’s long-term fundamentals remain intact. This is a great time to invest, “Jehan Chu, managing partner of Hong Kong-based blockchain venture capital firm Kenetic Capital, confirmed the report.
Thorn concurs. “We do not expect dogecoin to overtake bitcoin as the world’s most valuable cryptocurrency anytime soon,” he stated.