Dogecoin (CRYPTO:DOGE) might be a cryptocurrency that was created as a joke based on a 2013 meme of a shiba inu, but it’s also returned more in just a few months than the S&P 500 has in at least 30 years.
As of April 20, Dogecoin was up in an incredible 6,560% year-to-date, and its market cap hads reached $50 billion, making it more valuable than well-established blue-chip companies like Ford. It would be easy to dismiss Dogecoin as a speculation-driven frenzy that’s led to a massive bubble, but there’s more to the story than that. Indeed, Dogecoin is one of several such assets this year to have gone parabolic, including larger cryptocurrencies like Bitcoin and Ethereum, meme stocks like GameStop (NYSE:GME) and AMC Entertainment, and even “non-fungible tokens”, which have seen prices of as high as $69 million for digital artworks. These are all variations of the same theme, and a reminder that not every asset price is determined by fundamentals.
The power of a meme
What the assets above all have in common is that their growth has been powered by memes. Groups of traders on social media platforms like Reddit and others pump up these assets, and as their prices rise they attract more traders, who then send the prices up even more in a feedback loop. The meme traders often decide on an arbitrary price target, and then try to pump up a stock or a cryptocurrency to reach it. For example, a number of Bitcoin backers have changed their Twitter profile pictures to include laser rays in their eyes in solidarity with the phrase, “Laser rays until $100k,” meaning $100,000. There’s no deeper meaning to this. It’s simply a meme — a way of collectively supporting a mission to pump the price of a bitcoin to $100,000.
If this sounds juvenile or stupid, that’s because it kind of is. But assets prices don’t need fundamental reasons to move, and it’s a mistake to underestimate the power of such herd behavior.
Similarly, the anticipation of “DogeDay,” which was April 20, has coincided with a mission among Dogecoin holders to send the price of the coin up to $1. The image below is one of many popular Dogecoin memes on social media.
Dogecoin’s rise has also been supported by the successful direct listing of Coinbase, the leading cryptocurrency trading platform, and celebrity endorsements on social media. Tesla CEO Elon Musk has been a steady backer of Dogecoin, touting it as his favorite cryptocurrency, and his posts have at times led to spikes in its value.
Dogecoin is the people’s crypto— Elon Musk (@elonmusk) February 4, 2021
SpaceX is going to put a literal Dogecoin on the literal moon— Elon Musk (@elonmusk) April 1, 2021
No business leader better understands the power of memes or straddles both business and meme worlds better than Musk, who renamed himself the Technoking of Tesla and his CFO as the Master of Coin. Tesla itself exhibits some of the characteristics of a meme stock. There were fundamental reasons for the stock’s surge last year, but Musk’s cult-like following and his ability to attract attention on social media also helped. In a virtuous cycle for Tesla stock, the business case for the EV-maker and the loyalty from meme traders reinforce one another.
Dogecoin also has other celebrity backers like Snoop Dogg, Mark Cuban, and Gene Simmons, which has helped distinguish it from other “alt-coins.”