How to Interpret the Rise of Dogecoin (DOGE)?
This is an excerpt from our May Market Outlook.
There have been four major cryptoasset bull market cycles: 2011, 2013, 2017, and the present one.
As a company that has been operating in the crypto space since 2011, we’ve been around the block (har) long enough to note some familiar occurrences in each of these crypto cycles.
For example, during periods of heightened price volatility and media attention Blockchain.com team members will often receive calls from family and friends — some of whom we haven’t heard from in quite some time — about this or that coin that is making news for its price performance.
Dogecoin (DOGE) is up a stunning 12,000% this year.
What is perhaps even more remarkable than this percentage increase is that Dogecoin is now the fourth most valuable cryptoasset by market value, having recently surpassed longstanding #3 ranked Ripple (XRP).
Only Bitcoin (BTC), Ethereum (ETH), and the perhaps soon to be passed Binance Coin (BNB) have a greater total market value than Dogecoin.
A friend not in the crypto space, and not even a close follower of crypto prices, texted a Blockchain.com team member recently with the following question:
“What do you think of Dogecoin? Does it have any inherent value?”
While it might be tempting to dismiss Dogecoin as the joke it was when it was created, that could be a mistake. Dogecoin now has a:
- global brand; it has been generating more search engine activity of late than bitcoin
- fervent community of supporters and investors, including Elon Musk
- some growing support from prominent merchants for payments
- increasing support from exchanges (including Blockchain.com) and liquidity
As Joe Weisenthal from Bloomberg notes, cryptocurrencies are unique from stocks in that their communites are part of their fundamentals.
While the energy and enthusiasm around the rise of Dogecoin is exciting, it is also potentially problematic for a number of reasons.
Of particular concern is how institutional investors, particularly those for the first time considering investing in crypto, might view any sudden market value “flippening” between Dogecoin and Ethereum (ETH), and especially Bitcoin (BTC).
One of the consistent hallmarks since the close of the 2017–18 crypto bull market cycle has been a clearly established #1 (Bitcoin) and #2 (Ethereum). The strength of Bitcoin and Etherum during that time have been underpinned by strong fundamentals, including:
- network security and quantifiable measures of decentralization
- vibrant software developer communities
- platform support (wallets, exchanges, etc)
- regulatory clarity
While the prices of both Bitcoin and Ethereum have remained volatile, the stability of their ranking atop the digital asset leaderboard these past few years has provided a degree of stability in an otherwise incredibly fast moving crypto marketplace.
In short, institutions that move slowly might be unsettled to move at all if there is too much newfound uncertainty atop the leaderboard.
Indeed, one could argue that the instability and uncertainty created by any sudden dethroning of Ethereum, and especially Bitcoin, could pose a significant adoption setback for the cryptoasset space as a whole.