by Nikita Senthil (’23) | May 10, 2021
When Elon Musk tweeted, “The Dogefather SNL May 8” on April 27th, he set the whole world aflame. Not only did the tweet garner over 430,000 likes — almost three times as many as his average tweet — but Dogecoin itself saw double-digit gains, setting new all-time highs almost every day. The tweet, made in reference to Musk’s highly anticipated and somewhat controversial appearance on Saturday Night Live this weekend, reflects a recent trend of celebrities’ seemingly arbitrary backing of cryptocurrencies, contributing to a rapid rise in value almost inevitably followed by a dramatic fall. Dogecoin, of which investors traded almost $12.5 billion in volume in just one 24-hour period (May 3rd), seems to be fated to reach the same end.
Before we get ahead of ourselves, though, let’s take a closer look at Dogecoin: its beginnings, growth, and greater context in both technology and economics. The cryptocurrency, now with a $54.5 billion market cap, was created by a pair of software engineers in 2013 using the “doge” meme of a Shiba Inu; it began as a satirical commentary on the rise of altcoins, digital currency separate from the mainstream Bitcoin. Unexpectedly, during Christmas of that year, cyber attackers stole around $16,000 worth of Dogecoins on the platform Dogewallet, stirring media interest around the previously low-profile currency.
Unlike Bitcoin, there is no upper limit on the supply of Dogecoins, so the price theoretically can inflate indefinitely. Interestingly, the price of Dogecoin, once a modest $0.017, grew a rapid 600% after a viral TikTok challenge towards the beginning of the pandemic and another 800% in January 2021 as Reddit users “pumped” the asset. According to David Kimberley, an analyst at stock trading startup Freetrade, “[p]eople are buying the cryptocurrency, not because they think it has any meaningful value, but because they hope others will pile in, push the price up and then they can sell off and make a quick buck,” all before the meme dies.
Aside from those acting in less than good faith, celebrities such as Musk and Snoop Dogg (Snoop Doge?) have also chimed in with endorsements, which, while mostly ironic, have still hiked up Dogecoin prices dramatically. This volatility of Dogecoin has made many investors wary, some cautioning of an inevitable burst of the “cryptocurrency bubble,” just as Bitcoin crashed to a market value of $3,000 in early 2018 after reaching an all-time high of over $19,000 in late 2017. Charles Hoskinson, co-founder of Ethereum, the second-largest cryptocurrency after Bitcoin, is one such critic, claiming that when the bubble bursts, regulators and legislators will “become more involved with cryptocurrencies and hurt the entire industry.”
This is, in fact, one of the main contentious points about cryptocurrency as a whole. Cryptocurrency is built on blockchain technology, also known as Distributed Ledger Technology (DLT); it thrives on making the transaction and usage history of any asset unalterable and publicly available to reduce double-spending (spending currency twice) without a trusted third party. The public ledger system, in conjunction with the public-private key cryptographic security system, adds transparency and security for users while preventing any one central authority or corporation from accessing personal information.
At the same time, this decentralization is what governments view as a threat, and perhaps for good reason: the partial anonymity that cryptocurrency provides also allows for increased tax evasion and money laundering. Criminals have also hacked cryptowallets and successfully stolen millions of dollars in the absence of any regulatory body with the power to deter them from doing so. While Dogecoin may not be the safest investment, its history does provide valuable insight into the intersectionality of tech and the economy, government, and culture. So while we may not be able to prevent the currency’s inevitable crash, we can make sure to pay attention—and take notes—as it happens.