Dogecoin (DOGE) is “an open-source, peer-to-peer digital currency, favored by Shiba Inus worldwide.” Having spent several years trading at a reasonably static level and dropping further down the cryptocurrency ranking tables as newer and more popular initiatives emerged, on January 29, 2021, DOGE recently entered the top ten for the first time since 2015. Thanks to the antics of the WallStreetBets group of Redditors orchestrating a series of epic price pumps across various assets, it subsequently hit the global headlines.
So what is the story behind DOGE? How did it become the asset of choice for a group of anti-establishment retail traders in January 2021, and what are the chances of it maintaining the pump in the longer term?
Origins of Dogecoin
Dogecoin was founded in 2013 by Billy Markus and Jackson Palmer. The pair had the idea of creating a cryptocurrency that had a broader appeal than existing digital assets. They decided to base the currency on the Shiba Inu meme that had been the subject of a viral craze in 2013. The meme typically has a picture of a Japanese Shiba Inu dog surrounded by Comic Sans text saying things like “much wow.”
Markus and Palmer decided to adopt the popular meme for their cryptocurrency. They forked Dogecoin from Luckycoin, which is now obsolete, but was itself forked from Litecoin. Therefore, although it’s a proof of work blockchain, Dogecoin doesn’t use the same SHA-256 mining algorithm as Bitcoin and its many forks, meaning it can’t be mined with Bitcoin ASIC mining equipment. Dogecoin, and Litecoin, use the Scrypt algorithm, so miners use dedicated Scrypt mining hardware.
There are other differences between Bitcoin and Dogecoin. Notably, a few months after launching, Dogecoin developers decided to do away with a monetary policy that would put a cap on the total maximum supply of 100 million DOGE. Eventually, DOGE mining became merged with Litecoin mining, as the inflationary supply was disincentivizing miners from participating in the Dogecoin network.
As unlikely as it may seem, Dogecoin enjoyed significant early success after its launch and in the period leading up to the 2017 bull run. The Dogecoin genesis block was mined in early December 2013, and within a few weeks, it had jumped by 300%. Within a year of launch, it had achieved a market capitalization of $20 million and was highly popular with a large and active community around it.
In 2014, the Dogecoin community also supported several charitable initiatives through the Dogecoin Foundation. In January, it raised over $30,000 worth of DOGE, which was donated to the Jamaican bobsled team so they could attend the 2014 Winter Olympics in Sochi, Russia.
In the same year, a Twitter user also donated $11,000 worth of DOGE to the Doge4Water initiative, which aimed to help provide clean drinking water for people in rural Kenya. The initiative was hoping to reach a goal of $30,000 by the time of World Water Day in March, and the generous donation from one individual helped achieve this target a week beforehand.
Around the same time, Dogecoin users crowdfunded $50,000 to sponsor NASCAR driver Josh Wise, resulting in him driving a high-performance racing car around the track with the Doge meme’s image emblazoned on the hood.
All of these developments helped Dogecoin gain a reputation of being the internet’s tipping cryptocurrency.
2015-2020 – Elon Musk and Dogecoin
In 2015, Jackson Palmer abandoned the Dogecoin project after expressing his discontent with how get-rich-quick schemers and malicious hackers had taken over the community.
However, Dogecoin didn’t die out. In the lead-up to the 2017 bull run, the DOGE price started to climb along with the rest of the cryptocurrency markets. In early January 2018, DOGE hit an all-time high of $0.017 with a market cap just shy of $2 billion.
But like the rest of the cryptocurrency markets, the price didn’t sustain. Dogecoin dropped off, and by the end of December 2020, it was trading at $0.004 with a market cap of $154 million, occupying #42 in the Coinmarketcap rankings. This came about even despite the Dogecoin community’s attempts to reignite the token’s previous popularity, briefly engaging Elon Musk in a Twitter ruse to pretend he was the new CEO of Dogecoin.
2021 – Enter WallStreetBets
DOGE probably would have remained at its current trading levels, with its position dropping further down the rankings and new investment focused on up-and-coming projects. After all, that’s what had occurred during most of the last five years.
However, in the third week of January 2021, all bets were off when traders involved in the WallStreetBets subreddit turned the markets upside down. The story began in late 2019 when a lone trader and Redditor had noticed that Wall Street hedge funds were betting on bricks-and-mortar game retailer GameStop to go bust.
Despite the company having a relatively healthy balance sheet, institutional traders had pushed GameStop’s stock price down to $2-4 per share, with short interest many times higher than floating stock levels.
A year or so later, other Redditors had started to notice the situation and that the original trader had held onto long positions with the conviction that GameStop was a viable concern. As more Reddit traders jumped on the bandwagon, GameStop’s share price skyrocketed, forcing a short squeeze for the Wall Street hedge funds.
The situation came to a head on January 28, when Robinhood and other retail trading venues shut down GameStop trading. The move was almost universally condemned across social media, and surprisingly, by both Democrat and Republican politicians in the US.
DOGE’s Epic Price Pump
At this point, Dogecoin enters the story. With their ability to trade GameStop stocks severely hampered, the WallStreetBets Redditors started to look for other assets to pump and alighted on DOGE. Anyone who’d bought into Dogecoin at its all-time low in May 2015 would have had good reason to rejoice. Thanks to the WallStreetBets pump and yet another endorsement from Elon Musk, the coin reached a new all-time high of $0.078 – representing over 39,000% gains from the ATL. Even if you’d bought DOGE on January 27 and sold at the high, you’d have seen returns of nearly 900%.
The big question is, will the pump sustain? At the time of writing, the same question applies to GameStop stock and now silver prices. The WallStreetBets crowd doesn’t appear to show any signs of getting bored with pumping their favorite assets.
However, ultimately, there doesn’t appear to be any long-term bull case for DOGE. While the current prices may remain healthy for a short while, nothing about the project’s fundamentals have changed. Arguably, the price pump has introduced Dogecoin to an entirely new global audience. However, it seems unlikely that there will be a sustained rush to adopt the coin beyond the current influx of price speculators looking to profit from the pump.
Nevertheless, the longevity of Dogecoin remains impressive, given that it started as a joke. It serves to demonstrate that with the will of a loyal community, anything is possible in the world of crypto.