Nothing says as much in 2021 as Dogecoin, a dog-themed cryptocurrency that has skyrocketed in value recently, thanks in part to the support of Elon Musk and other celebrities. For a while it was the 10th largest cryptocurrency. Dogecoin ended 2020 with less than half a cent per DOGE, according to CoinDesk’s Dogecoin price index. The company is now trading at or above 5 cents, which corresponds to a return of around 1,000% since the beginning of the year.
It may be tempting to write this off as speculative madness or just coincidence, but that would miss the bigger picture. We should take note of the rise of Dogecoin, if only because it reflects some of the key tensions of the moment.
Emily Parker is CoinDesk’s Global Macro Editor.
Here are just a few things Dogecoin mania says about the world we now live in.
There’s a thin line between absurdity and seriousness
Dogecoin is literally named after a dog and is represented by a Shiba Inu. Rapper Snoop Dogg recently renamed himself Snoop Doge. If this all sounds ridiculous, it’s because it is. The creators of Dogecoin wanted it to be a joke and there is absurdity in its design.
Today, some of the more serious people in the not always serious crypto industry resent the importance of Dogecoin. You’ve been trying for years to convince people that cryptocurrency has real technology behind it, even when no one outside of the industry had the slightest idea how it worked. And now finally the world is paying attention. Almost every day there seems to be a different brand name trying to get into the action. PayPal. Tesla. MasterCard. Harvard. Morgan Stanley. America’s oldest bank (BNY Mellon). The list goes on and Bitcoin price has reacted accordingly, exceeding $ 50,000 this week.
See also: Michael Casey – money reinterpreted: memes mean money
But now you have that punchline of a coin that takes up part of the spotlight that Bitcoin worked so hard for. What kind of message is this sending to the non-crypto world?
It sends a message that we should already know: What once seemed absurd to many can become dead serious. Before 2016, Donald Trump saw an outrageous reality TV star in much of the world who had no chance of winning the US presidency. They saw it as a joke, and many still do. Even so, he held the most powerful position in the world for four full years.
Obviously, this isn’t a perfect comparison, and it’s not about comparing Dogecoin to Trump. It’s easy to say that Dogecoin “joked” its way to a market cap of around $ 7 billion, and that’s real money. It also means that if the DOGE mania breaks out, some people will suffer very real losses.
Collective belief can trump “fundamentals”
How does this happen? How does something that seems obviously absurd become undeniably real? This is in part because reality seems increasingly to be shaped by collective belief, rather than underlying facts.
This collective belief can prevail against more practical concerns. Until recently, Dogecoin was essentially abandoned by developers. The last major software version was released two years ago. Others have pointed out that it doesn’t have its own miners, making it vulnerable to attack. Critics will say that the recent DOGE boom has been driven by speculation rather than fundamentals.
Dogecoin is a sentimental asset. But a lot of things feel like this lately. Value is created by the mood of the crowd and powered by the rocket fuel of social media. The most obvious example is GameStop, where Redditer teamed up to raise the price of a sharply shortened stock. A more recent example is MarsCoin, which rose over 1,000% after Musk mentioned it on Twitter.
What is different now is that social media can translate collective beliefs into collective action at an unprecedented rate and extent.
Teens are becoming dizzyingly famous on TikTok, aided by the collective support of fans and the app’s mysterious algorithm. Do these seconds-long videos deserve global recognition? Do these people deserve fame? Maybe not, but it doesn’t matter either. Some become millionaires. This may be harmless, but less so are internet-driven conspiracy theories that don’t actually have to be based to have real consequences. People just have to believe that they are true.
Collective belief has always been a powerful force, but it cannot move markets on its own. What is different now is that social media can translate collective beliefs into collective action at an unprecedented rate and extent. Celebrities like Musk have been able to use their huge fan base to get people to take concrete steps like buying DOGE and increasing the price.
People want decentralization, but it remains unattainable
The idea of collective belief is at the center of money and therefore cryptoculture. Without a shared belief in its value, fiat currency would be little more than paper and metal. While central governments can print money and influence the price, Bitcoin is said to be independent of this system. The price of Bitcoin, to put it simply, is determined by the amount people are willing to pay for it. In the early days that was just a few cents. It’s now over $ 50,000.
Dogecoin represents an ideal of what cryptocurrency should be. It’s really weird and lives outside the financial system. Its founders have effectively left the scene and left it to the rule of the community. Big banks don’t want anything to do with it. It’s safe to say that it will be a while before we see a big headline with Goldman Sachs and Dogecoin.
Bitcoin has clearly come of age and is gaining the respect of more traditional players. This is good for mainstream acceptance and maybe for the entire industry. However, the maturation of Bitcoin is also associated with a degree of centralization – the oversized influence is wielded by major investors (called whales) as well as certain mining pools and exchanges.
See also: Michael Casey – Money Reinvented: Tales Wall Street Can’t Control
Musk is a well-known fan of Bitcoin and has suggested making Dogecoin the “people’s crypto” – that is, a democratic form of money. This picks up on the zeitgeist we’ve seen in the GameStop frenzy, which has been vindicated as a strength by private investors versus large hedge funds. But, as entertaining as it may have been, will GameStop really change the balance of power in the financial world?
A democratization of finances is difficult to achieve. So it’s no wonder that Dogecoin isn’t that decentralized after all. Musk recently pointed out that Dogecoin’s wealth is too concentrated. That claim was supported by Coin Metrics, which found that the top 100 DOGE addresses accounted for 68% of their total offering, compared to 13.7% for Bitcoin. In other words, the top 1% of DOGE addresses have 94% of the total offer.
Musk tried to solve this problem by asking large DOGE owners to sell and even offering to pay money for them in order to void their accounts. But it’s hard to escape the irony here. An unfathomably rich man pumped the price of DOGE and then complained about a concentration of power that he offered to fix himself.
Dogecoin should be taken seriously, if not literally. Its rise reveals tensions that will not go away anytime soon. We should take care of them. Otherwise the joke is up to us.
