What is dogecoin? And why is it rising and falling with Elon Musk?
The cryptocurrency dogecoin went on a rocket ride to the moon and back over the weekend after Elon Musk poked fun at it on Saturday Night Live before announcing on Monday that his company would accept it as legitimate payment for a mission to the moon.
If that sentence makes little sense to you, you’re not alone. But read on for a primer about what exactly is going on.
First thing’s first — what is dogecoin?
Dogecoin was created in 2013 by a pair of software developers who worked at Adobe and IBM, respectively, as a parody of cryptocurrencies such as bitcoin. Cryptocurrencies are a type of digital money that can be used to pay for things in the online world. Most of them, including dogecoin and bitcoin, are backed by an encrypted digital ledger of transactions, known as a blockchain.
Named after a Shiba Inu dog that was the subject of an internet meme at the time, cryptocurrency enthusiasts and online jokesters began trading dogecoins for fractions of a penny. The first dogecoin that ever changed hands in early 2014 was worth $0.001540753 US. Today that same dogecoin is worth 50 cents US, an increase of more than 32,000 per cent.
While technically dogecoin exists as an offshoot of the original blockchain that bitcoin is on, it is not as secure as bitcoin, nor is there a cap on the number of dogecoins that can exist, as is the case with bitcoin.
“Unlike many other cryptocurrency projects, dogecoin does not seek, or even pretend, to be anything more than the world’s most fun currency,” is how Alex Thorn, head of research at TSX-listed investment management investment firm Galaxy Digital, described it in a research report last week.
What does it have to do with Elon Musk?
Strictly speaking, nothing. But Musk, who recently became the richest man in human history, is a big fan of the cryptocurrency. Musk jumped aboard the doge train last year, mostly as a joke, but over the course of several months, comments he made about dogecoin on social media lent it more and more credence.
His earliest mention of dogecoin came on Twitter in April 2019, when he called it “my fav cryptocurrency.”
His fondness has only grown since then.
It’s inevitable <a href=”https://t.co/eBKnQm6QyF”>pic.twitter.com/eBKnQm6QyF</a>
His electric car company, Tesla, became a major influence in cryptocurrencies in general, after it announced earlier this year that it would accept bitcoin as payment, and would hold bitcoin on its books as an asset.
Last quarter, the company revealed it has already stockpiled more than $1 billion US worth of bitcoin.
What happened this weekend?
Soon after, the price of dogecoin rose to a high of about 73 cents US on Thursday, according to cryptocurrency exchange Coinbase.
WATCH | Elon Musk pokes fun at dogecoin on SNL’s Weekend Update segment:
In one SNL sketch, Musk, appearing as a fictional cryptocurrency expert, was asked to explain what exactly dogecoin is, and after some jovial back and forth, Musk’s character admits the whole thing is a “hustle.”
Despite Musk’s character saying elsewhere in the same sketch that dogecoin is “the future of currency” and “an unstoppable financial vehicle that’s going to take over the world,” the currency sold off after the sketch aired going as low as about 40 cents US per doge in the early hours of Sunday morning
Edward Moya, a market analyst with foreign exchange company Oanda, said large blocks of doge started selling fast.
“Twitter quickly focused on the many whale alerts that showed a steady abandoning of massive dogecoin bets during [the show],” he said.
So why is dogecoin ‘going to the moon’ again?
The dogecoin in-joke got a little more serious on Monday when Musk tweeted about his space exploration company’s next mission.
“SpaceX launching satellite Doge-1 to the moon next year,” Musk tweeted without elaborating.
More details came in a media release from Canadian manufacturing and logistics company Geometric Energy Corporation. The company said it will launch a 40-kilogram satellite into orbit on one of SpaceX’s rocket. The release said the company would pay for the mission in dogecoin.
“This mission will demonstrate the application of cryptocurrency beyond Earth orbit and set the foundation for interplanetary commerce,” SpaceX’s vice-president Tom Ochinero. “We’re excited to launch Doge-1 to the moon!”
CBC News asked Geometric exactly how much dogecoin they are paying in exchange for their space on the rocket. That inquiry was not immediately returned.
Following news of the deal, the cryptocurrency’s price increased on Monday, topping 50 cents US at one point. Late in the day however, doge were going for around 46 cents, well below where they were before the show aired.
That’s the multibillion-dollar question. (Or as Thorn put it in the style of the eponymous meme it’s named after: “Very Currency. Much coin.”)
Feverish trading in dogecoin has pushed the total value of the cryptocurrency up above $65 billion US. That makes dogecoin the fifth most valuable cryptocurrency in the world.
It’s worth more than Canadian telecom company Telus, grocery chain Loblaws and retail chain Canadian Tire are worth — put together.
And the sky may indeed be the limit. Musk’s wealth means he can afford to see what happens with doge, regardless.
But some financial commentators question whether it is responsible for Musk to comment on the cryptocurrency, given that he has the power to move its price.
“I think he’s having a lot of fun … He can say anything he wants about dogecoin or cryptos fully aware that just him saying something moves the price,” said James Angel, an associate professor at Georgetown University’s McDonough School of Business who specializes in financial markets and cryptocurrency.
“Anyone who wants to play the Elon Musk game should be prepared to lose all their money.”
Oanda’s Moya said that Musk’s appearance may represent the peak for dogecoin’s popularity.
“At best, Dogecoin’s fate might be similar to GameStop, with a hardcore retail army that remains believer over the long-term,” he said.
Others are as convinced as Musk that dogecoin is here to stay.
“Long term fundamentals of doge are intact. This is a buying opportunity,” said Jehan Chu, managing partner at Hong Kong blockchain venture capital firm Kenetic Capital.
Thorn agrees. “We don’t expect dogecoin to become the world’s most valuable cryptocurrency any time soon, but doge should not be ignored,” he said.
“Dogecoin’s longevity is ensured so long as one truism remains: People love a good joke.”