A joke no more? The rise of a $58 billion crypto phenomenon

Two weeks after the US presidential election, the crypto markets are running at a center of gravity. The sector has achieved a record market cap of more than $3.4 trillion, while bitcoin shattered expectations by rising above $98,000, according to Coingecko. Amid this enthusiasm, certain coins are outperforming the pack, and Dogecoin (DOGE) is one of the standout performers.

The oldest memecoin is up an astonishing 150% since Election Day, buoyed by promises from President-elect Donald Trump and Elon Musk’s growing political influence. In fact, Musk has been a longtime supporter of Dogecoin, calling himself “The Dogefather” and regularly praising the memecoin the X. With the announcement of the Department of Government Efficiency (DOGE), a newly created agency Musk is spearheading along with Vivek Ramaswamy, this connection took on new dimensions.

Dogecoin, created as a satire of cryptocurrency frenzy and social media hype, has long been dismissed by the “serious” crypto finance players as a frivolous fad. Still, the memecoin thrived on its hype and now boasts a market cap of $58 billion — on par with some of the world’s biggest companies.

This raises a key question: is there untapped value in Dogecoin beyond the hype? Or has it just mastered the art of cashing in on the hype? Dogecoin’s unique journey challenges conventional notions of value and utility, making it a phenomenon that investors – and skeptics – can no longer ignore.

What is Dogecoin?

Dogecoin was born in 2013 as a light-hearted parody of the rapidly growing crypto market. Inspired by the viral meme of a Shiba Inu dog, software engineers Billy Markus and Jackson Palmer created Dogecoin to mock the hype and speculation surrounding it.

Technically, DOGE is the original cryptocurrency of the Dogecoin blockchain, which is a fork of Litecoin, itself a fork of Bitcoin. Like Bitcoin, Dogecoin operates on a Proof-of-Work consensus mechanism. Unlike Bitcoin, it uses the Scrypt hashing algorithm instead of SHA-256. This algorithm is designed to be less dependent on specialized ASIC miners, making it more accessible to general hardware like CPUs and GPUs. This democratic approach to mining earned Dogecoin the nickname “the people’s currency”.

Dogecoin blocks are created pretty much every minute. This makes Dogecoin transactions faster and cheaper than Bitcoins (33 transactions per second vs. 7). Yet some argue that this is still too low, especially compared to the Lightning Network’s potential of millions of TPS.

In terms of tokenomics, Dogecoin uses a fixed reward system. It awards miners 10,000 DOGE per block, adding about 5 billion DOGE to the supply each year. This results in a steady rate of inflation that declines over time as aggregate supply expands. As of November 2024, Dogecoin’s inflation rate is approximately 3.4% with a circulating supply of approximately 146 billion DOGE.

Dogecoin can be described as a cheaper, faster, but less secure alternative to Bitcoin. Unlike Bitcoin-inspired blockchains like Litecoin and Bitcoin Cash, however, it hasn’t faded into obscurity. Its strength lies in its community, which has driven its success and given it a lasting identity.

The Power of the Dogecoin Community

The Dogecoin community is famous for its coordinated actions. It uses collective energy for both beneficent and disruptive purposes. In 2014, Dogecoin enthusiasts raised $30,000 to help fund the Jamaican bobsleigh team’s trip to the Winter Olympics. That same year, they made headlines again by raising $55,000 to sponsor NASCAR driver Josh Wise. Another memorable initiative was the “Doge4Water” campaign, which raised over $30,000 to build clean water wells in Kenya.

On the disruptive side, the Dogecoin community played a notable role in GameStop’s short squeeze in 2021. Dogecoin holders joined with GameStop retail investors on Reddit, driving up GameStop’s stock price. This triggered a massive short squeeze that caused huge financial losses for hedge funds betting against the stock.

The doge

In 2019, tech billionaire Elon Musk began endorsing Dogecoin on social media and television. Musk’s involvement went beyond tweets and memes. He argued that Dogecoin could become a viable currency for daily transactions. Later, Musk’s company Tesla allowed customers to buy select items (but not vehicles) with memecoin. SpaceX followed suit and announced the DOGE-1 mission to the Moon, the first space mission funded entirely by Dogecoin.

The “Dogefather era” peaked in 2021. Elon Musk’s tweets helped drive Dogecoin’s price from $0.01 to an all-time high of $0.65 – a staggering 6,400% increase in just five months. Although the coin’s value fell during the subsequent bear market, it stabilized at a new, higher baseline of $0.07.

Musk’s acquisition of Twitter – the primary social media platform for the crypto space – has further cemented his influence over Dogecoin. Twitter even temporarily changed its logo to the iconic Doge meme in April 2023, triggering a 30% increase in the DOGE price.

Elon Musk’s ambitions have since expanded into the political sphere. A vocal supporter of President-elect Donald Trump, Musk has gained considerable influence in Washington, DC. He was also named co-head of the newly created agency, aptly named DOGE, or Department of Government Efficiency. The Dogecoin price responded by rising 150%, reaching $0.42 at the time of writing.

However, Musk’s deep attachment to Dogecoin has not been without controversy. In 2023, a group of Dogecoin investors filed a lawsuit accusing Musk of manipulating the coin’s price for personal gain. They claimed his tweets, media appearances and even Twitter’s logo change were coordinated “publicity stunts” to profit from insider trading. Reuters reported that trial ended last week, with the judge ruling that investors “could not prove securities fraud by relying on Musk’s tweets.”

DOGE as currency

With great technology, community support and celebrities, does Dogecoin have what it takes to become a true currency? This question does not have a straightforward answer. At its core, a currency is not intrinsically valuable; its value comes from the collective belief in its ability to facilitate exchange and store value. The more people share this belief and use the coin, the closer it gets to being a functional currency.

By this measure, Bitcoin – with 822,000 unique active addresses weekly – has already crossed the threshold of becoming a “real currency”. However, Dogecoin lags significantly behind with only 80,000 unique active addresses weekly, according to data from IntoTheBlock. Furthermore, Dogecoin’s heavy reliance on a controversial figure, Elon Musk, poses additional risks. While Musk’s support has boosted Dogecoin’s profile, this reliance on a single hype-driven personality creates significant uncertainty.

Despite these limitations, Dogecoin is used as currency. It may not compete with Bitcoin as a global currency, but it has already carved out a niche as a community currency. Its future success will largely depend on its society’s ability to reduce its reliance on Musk and move beyond the media-driven buzz. Without this development, Dogecoin risks remaining a community memecoin, attracting short-term speculators more than real users.

Dogecoin’s journey has been remarkable. Eleven years after its inception, what began as a satire of social media and crypto hype has harnessed the power it once mocked to evolve into a legitimate community currency. This challenges the traditional finance perspective that often sees hype as irrelevant or unsustainable. The Dogecoin community has redefined it, making it a culturally significant phenomenon.

In this sense, Dogecoin is more than a memecoin – it is a case study. It shows how decentralized societies and cultural movements can influence modern finance. Whether Dogecoin achieves wider adoption or remains within its niche, it has already proven the power of collective belief and action.