With the emergence of a rather speculative bullish phase, a cryptocurrency made headlines: Dogecoin. Dogecoin is in the world's Top 10 cryptocurrency by market capitalization in 2021. Its capitalization exceeds $ 65 billion as of mid-May 2021. This cryptocurrency is probably the most speculative. This is because Dogecoin, unlike Bitcoin, Ethereum, or most other major cryptocurrencies, has no particular purpose. Its speculative nature gives it increased visibility and extremely high capitalization. Back on the characteristics, strengths, limits and prospects of DOGE, as well as our opinion on Dogecoin before possibly investing.
WHAT IS DOGECOIN?
Dogecoin (DOGE) is one of the largest cryptocurrencies in the world. Often regarded as one of the most speculative cryptocurrencies, Dogecoin is the subject of both controversy and global enthusiasm. From January to May 2021, its capitalization has multiplied by more than 100, which is absolutely considerable and allows to far outperform all other cryptocurrencies. It should be noted, for example, that the Doge's outperformance on Bitcoin in the first half of 2021 is nearly 3,500%.
In 2017, the number of active addresses on Dogecoin was around 20,000, compared to nearly 130,000 in April 2021, representing a 6.5-fold increase in cryptocurrency activity in the space of 4 years. The success of Dogecoin is largely based on its high visibility and its gradual media coverage. However, this success should be qualified. Dogecoin does not bring great innovation to the cryptocurrency industry. In comparison to Dogecoin, between early 2017 and 2021, active addresses on Ethereum increased from 20,000 to nearly 1,000,000.
HISTORY OF THE CREATION OF DOGECOIN
Dogecoin was created at the end of 2013 by a certain Billy Markus. He teamed up with Jackson Palmer, an engineer at Adobe Software, to create a fully community-based cryptocurrency that would surpass Bitcoin. Less than 30 days after its launch, Dogecoin was receiving nearly 1 million visits.
Initially, DOGECOIN does not aim to provide an improved Blockchain system. Soon Billy Markus will find that the demand for more efficient cryptocurrencies will gain the upper hand. In a post on Vice in December 2013, he said, "I think everyone wants a crypto where the mining process is actually useful." In 2015, for personal reasons, Billy Markus sold all of his Dogecoin.
As Business Insider reported, Billy Markus now sees Dogecoin as an embezzlement of real values behind cryptocurrency. In his own words, Dogecoin today shies away from the values of "joy, kindness, learning, generosity, empathy, fun, community, inspiration, creativity, generosity, foolishness, nonsense. ". In other words, the cryptocurrency that wanted to be community-based has turned away from its ambitions.
HOW DOES DOGECOIN WORK?
Dogecoin retains a peer-to-peer aspect, while seeking to democratize the cryptocurrency industry. On the one hand, Dogecoin does not have a limited amount in circulation. The Dogecoin Blockchain system ensures a fairly high processing speed. The processing time for a Block is one minute, compared to almost 2.5 minutes for Litecoin for example.
In addition, it will be remembered that the quantity of Dogecoin in circulation is unlimited, that is to say, it is possible to mine as much DOGECOIN as possible. It is therefore a so-called deflationary cryptocurrency: the unlimited nature of the forward supply reduces the upside potential.
BITCOIN VS DOGECOIN
Like a joke, Dogecoin just wanted to outperform Bitcoin. The incredible performance of the past few months seems to make this myth a reality.
Nevertheless, two dynamics are to be grasped:
First, the cryptocurrency market is very fragmented. In April 2021, the top 10 cryptocurrencies represented 81% of the total market capitalization. By itself, Bitcoin represents, in terms of capitalization, almost half of the market for 10,000 cryptocurrencies in circulation. Thus, only initially favorable market dynamics can participate in the outperformance of crypto currencies like Dogecoin.
On the other hand, the Doge enjoys a very high media coverage and outperformance (which may seem too fast). Between January and May 2021, the Doge outperformed Bitcoin by 3,500% while the Doge had so far underperformed.
Clearly, DOGECOIN would become a serious rival to Bitcoin only if the trend of recent months were to be maintained for a very long time. It will be recalled that the capitalization of Bitcoin in May 2021 is 16.5 times greater than that of the Doge. The two giants, Ethereum and Bitcoin, indeed weigh ¾ of the cryptocurrency market. The gap between Bitcoin and the two leaders is still very large.
SHOULD YOU INVEST IN DOGECOIN?
Elon Musk blows hot and cold on Dogecoin
The Doge’s outperformance is very largely due to Elon Musk. With nearly 55 million Tweeter subscribers, the vast majority of whom are cryptocurrency investors, its media power is strong. It all started on February 4, 2021 with a tweet that first ignited the DOGE.
ur welcome pic.twitter.com/e2KF57KLxb
— Elon Musk (@elonmusk) February 4, 2021
Since February, Elon Musk has multiplied tweets about DOGECOIN and often generates strong market movements according to his statements. It can therefore be said that Elon Musk is leading speculative movements in cryptocurrency. Sometimes presenting himself in his biography as "the former boss of Dogecoin", Elon Musk has considerable striking power on this cryptocurrency paradoxically considered useless.
For example, the price of DOGE collapsed 30% in 24 hours on May 8 following an interview with Musk calling dogecoin a "scam." Thus, the DOGE, which he also calls "the people's currency" is very dependent on the moods of the billionaire. Although the boss of Tesla and SpaceX shows great interest in cryptocurrencies, it is clear that some of them are now considered games.
Lack of fundamentals penalizes Dogecoin
The expansion of the crypto market has unfolded in two phases over the past 12 months. First, there is a first phase of increase measured with institutional investments (spring 2020-winter 2020). Then, we saw a second speculative phase from the start of 2021. It was from this phase that DOGECOIN outperformed.
DOGECOIN has no fundamentals. Unlike Ethereum, DOGECOIN is not used by token issuing companies with innovative projects, for example. Likewise, DOGECOIN has no direct utility as it may be with Ripple. Written more clearly, there are no fundamentals. DOGECOIN is one of the most speculative cryptocurrencies. The overall state of the cryptocurrency market, determined by the volatility of the financial system, is a major factor that allows for rises or falls in the price of cryptocurrency.
HOW TO INVEST IN DOGECOIN?
Dogecoin can be accessed on cryptocurrency investment platforms, such as Binance or Bitpanda. These cryptocurrency platforms make it possible to buy or sell Dogecoin like any other type of cryptocurrency. It is also possible to turn to certain stock brokers like eToro for example who offer to buy Dogecoin derivatives.
WHAT PERSPECTIVES FOR DOGECOIN?
Once again, the problem with Dogecoin remains the profound lack of fundamental visibility. The rapid performance in recent months makes projection impossible, as the market cannot fundamentally adjust.
However, it is not impossible to draw comparisons that can be useful to us. Indeed, crypto-currencies are assets very correlated with the financial situation. It is also for this reason that all major spikes in financial stress are followed by a bullish rally in cryptocurrencies.
Dogecoin / Bitcoin Ratio Chart And Volatility From 2014 To 2021
The chart above shows the DOGE / BTC ratio compared with the volatility of US equities (VIX). We see that Bitcoin increases sharply when volatility decreases and tends to correct when volatility reaches supports. Additionally, this chart shows that Dogecoin is underperforming Bitcoin after volatility hits a low. In other words, Dogecoin corrects more violently depending on the overall state of other financial markets. In short, it will be noted more simply that Dogecoin outperforms in the second phases of a bullish rally on the global crypto market.