How is there a future for Dogecoin

Dogecoin crypto hype: The rise of the "joke currency" is likely to continue

A price increase of around 15,000 percent since the beginning of the year - that is extraordinary even for the booming cryptocurrency market. Anyone who had put 1,000 dollars (829.26 euros) in Dogecoins at the beginning of January would have increased the money - at least on paper - to over 150,000 dollars after the latest record exchange rates. Can such a price explosion go well in the long run? What's behind the hype?

Good joke

The breathtaking rally is all the more astonishing as the digital currency, which has existed since 2013, was actually supposed to be a joke. But driven by celebrities like Tesla boss Elon Musk, rap mogul Snoop Dogg or tech billionaire Mark Cuban, Dogecoins have become one of the hottest speculative objects on the financial market.

Now the hype is heading for a new high point: On Sunday night, Musk will perform the US comedy show Saturday Night Live (SNL). The star entrepreneur has indicated that he could use the big stage for more Dogecoin advertising. This has been causing excitement in the crypto market all week.

For months, Musk has been fueling the Dogecoin course with benevolent tweets. Currency supporters love him for it. The Tesla boss is obviously well aware of his role - he advertised his appearance at SNL on Twitter as "The Dogefather", alluding to the legendary Mafia film "The Godfather".

Musk as an advocate

Influential supporters like Musk have helped Dogecoins to rise rapidly. For years, hardly anyone outside of the crypto scene knew the digital currency. It has now reached a market capitalization of around 80 billion dollars, which is almost the stock market value of the largest US automaker, General Motors.

Thanks to the latest soaring, which drove the price to a record high of more than 70 US cents on Friday, Dogecoin was most recently the fourth largest cryptocurrency in terms of market value. The whole thing was not meant seriously at first. Jackson Palmer and Billy Markus, who started the project around seven years ago, turned a dog meme popular on the Internet into a cyber motto for fun.

In the meantime, however, the US financial market is entering a new era in which cheap brokers like Robinhood are bringing masses of younger investors to the stock market via easy-to-use apps. Some of them organize themselves in online forums and bid high stocks or currencies in the style of flash mobs - a well-known example of this was the price rally of the ailing video game retailer Gamestop.

This market environment - often detached from fundamental data and fueled by the trillion dollar corona crisis aid from the US government and the central bank - is a breeding ground for speculative exuberance. There are correspondingly many warnings about excesses. Experts strongly advise not to put any money into Dogecoins or the like, the total loss of which would not be bearable.

Skeptical observer

Critics see tendencies towards pyramid schemes in Dogecoins or newer alternatives such as Safemoon. Even outspoken crypto advocates such as major investor and Bitcoin billionaire Mike Novogratz are skeptical. "I think it's dangerous because if the enthusiasm wears off, it could go downhill," he told CNBC this week. Several experts warn of a bubble.

But there are other voices too. Tech billionaire and owner of the Dallas Mavericks basketball team, Mark Cuban, believes Dogecoins have long-term potential. Unlike Bitcoins, which due to their limited volume are used more as a store of wealth than for payments, Dogecoins are suitable as a means of transaction. That is why Cuban wants to open the Mavericks fan shop and ticket sales for payments with Dogecoins, for example.

Even if the Dogecoin should disappear into the depths of the crypto world as quickly as it emerged from it, experts see a trend towards more diversity in the market. In the shadow of the most famous cyber currency Bitcoin, which has recently been under pressure, the second largest digital currency, Ether, reached record highs this week. According to the analysis company Coingecko, Bitcoin now only has a share of around 46 percent of the entire crypto market. At the beginning of the year it was still 70 percent. (APA, May 8, 2021)