Why Dogecoin Matters, and Why You Haven't Missed Out (Yet)
Editor's note: The recent market mania is absurd – but that doesn't make it meaningless...
Earlier this year, more and more amateur investors piled into "meme" stocks and speculative cryptocurrencies... pushing their prices to astronomical levels. Of course, these traders weren't buying based on fundamentals. And it's better to look for high-quality investments than to follow the masses.
But according to Enrique Abeyta, an editor at our corporate affiliate Empire Financial Research, there's still a lot we can learn from the Reddit-fueled madness...
In today's Masters Series, originally from the May 15 issue of Empire Financial Daily, Enrique reviews how crypto darling Dogecoin gained popularity... explains why its price suddenly skyrocketed... and reveals why value is all about perception...
Why Dogecoin Matters, and Why You Haven't Missed Out (Yet)
If you've been following any media this year – financial or otherwise – you've likely heard of the stratospheric rise of the cryptocurrency Dogecoin...
In a sign of these wild times, this crypto, which was launched as a joke, is up more than 10,000% this year.
Back in 2013, software engineer Jackson Palmer wanted to create a cryptocurrency to make fun of bitcoin. He chose to brand his new crypto idea after a popular meme... a picture of a Shiba Inu (a Japanese breed of dog) with text sharing the inner monologue of the animal in broken English. The memes looked like this...
At the time, bitcoin and other cryptocurrencies had just burst onto the scene. Here's how bitcoin performed going into that period...
Palmer decided to combine the two trends into a joke on Twitter (TWTR) and tweeted the following...
The tweet drew a lot of attention...
So Palmer bought the website domain dogecoin.com and left a note on the site asking folks to contact him if they wanted to make Dogecoin a reality.
Around this same time, a software engineer at IBM (IBM) named Billy Markus had been experimenting with creating his own cryptocurrencies. He saw that the code for bitcoin was open-source, meaning he could create whatever he wanted. His first invention was a joke cryptocurrency based on the video game Animal Crossing that he called "Bells."
Markus saw Palmer's note... And the two pressed forward to launch Dogecoin. They worked off the bitcoin source code, made a couple of aesthetic changes and tweaks, and then sent the new creation out into the world.
Most cryptocurrency creators do something called "premining," where they create a bunch for themselves. But Palmer and Markus – because they created Dogecoin as a joke – barely did any premining... and ended up with only about $5,000 in Dogecoin each.
Dogecoin quickly caught fire on Internet forum Reddit and other places. Soon, members of the crypto community began getting involved... And there was an explosion in mining pools and services. Dogecoin was real.
From there, this new "altcoin" had a back-and-forth history, like many of its peers...
Both founders became disillusioned with their runaway creation and divorced themselves from it. The coin went up a lot... and then down a lot. It also suffered from an exchange bankruptcy and several hacks.
But all of this began to change in early 2021, as the power of Reddit users over the financial markets began to assert itself...
By now, most folks are familiar with the incredible story of video-game retailer GameStop's (GME) wild ride earlier this year. But at the same time, another trend was emerging – interest in Dogecoin.
It was a perfect fit for Reddit users due to their love of absurdity and anti-authoritarianism. If GameStop was their tweak to the traditional stock investing community, Dogecoin was their tweak to everything else in the financial world.
This was literally a joke currency symbolized by a meme of a cute dog that had no real utility and questionable technology... But the army of retail investors piled in.
Several famous people became involved and helped the trend along – folks like rapper Snoop Dogg, Gene Simmons of rock band Kiss, and former porn star Mia Khalifa.
But the big proponent was tech entrepreneur and Tesla (TSLA) CEO Elon Musk. He first tweeted about the cryptocurrency on February 4 with the simple tweets "Doge" and "Dogecoin is the people's crypto."
These quickly sent the value of Dogecoin surging almost 50%... But the crypto was just getting started.
Musk continued his "tweet storm" about it. And later that day, he posted the following...
From a value of $0.03 the day before, Dogecoin's price more than doubled to $0.08.
From there, the price stayed relatively stable – although importantly, it didn't go down. Remember, this is a joke cryptocurrency with questionable technology.
Then, a few months ago, it exploded higher.
The exact catalyst is hard to determine, but it appears that Dogecoin proponents were getting excited around the unofficial cannabis "holiday" of April 20 – 4/20.
The currency surged another 350% ahead of April 20, but quickly sold off. It was an important example of the old Wall Street adage of "Buy the rumor, sell the news."
Then, with Musk booked to host Saturday Night Live in early May, the price exploded again to more than $0.60... before pulling back again after Musk called it "a hustle."
In the chart below, you can see the wild ride earlier this year...
So... why does a joke cryptocurrency represented by a meme, backed by questionable technology, and hyped by an eccentric and controversial tech entrepreneur matter?
Well, maybe you've even been pitched on getting involved. And whether you should or not depends on your investing goals.
If you're looking to have some fun and maybe make some big money, but with a high chance you'll lose all your money, then I won't tell you not to do it.
But keep in mind that this isn't even a criticism of Dogecoin. What's happening here is real.
If people can buy and sell an asset and make or lose money on it, then it's real. I've said many times to my readers that stocks are just pieces of (digital) paper, and the "value" of cryptocurrencies is really all just in perception.
If enough people believe something has value, then it does have value.
Whether Dogecoin was meant as a joke isn't relevant – what's relevant is that people want to ascribe value to it. If enough people want to bet on a joke or a lark, then that asset is going higher.
On the other hand, if your investing goal is to make money and manage your wealth, you're better off staying away from Dogecoin... especially now.
Dogecoin is a lot like "penny stocks." These are microcap stocks that most often trade under $1 with questionable prospects... but they can nevertheless go up a ton if the story around them catches on with enough people.
Like Dogecoin, they can be fun for investing. They can also make you money... But over time, you're much more likely to lose most – if not all – of your investment.
These aren't assets I'd ever recommend to my readers. But they're a more enticing investment before they roar higher in price.
Buying them at $0.03 or $0.08 before everyone you know is talking about them – while still an incredibly risky strategy – is better than buying them after they've exploded 2,000%.
With Dogecoin and other wildly speculative assets, think of investing if you enjoy it, but mentally write off 100% of your money the moment you buy. You might get lucky and make some money... But even if you lose everything, maybe you can say you had some fun.
But instead, I recommend avoiding the wildly speculative bubbles and looking for stocks with massive, triple-digit upside potential.
Regards,
Enrique Abeyta
Editor's note: It might feel like you've missed the boat with the massive gains in cryptocurrency... but Enrique has found a way to gain exposure to red-hot cryptos like Dogecoin without ever actually buying a single coin.
In short, he says this is an opportunity to profit from exposure to all cryptos – regardless of whether they go up, down, or sideways. Best of all, you can buy it right in your regular brokerage account, just like Tesla (TSLA) or Microsoft (MSFT). And it's all possible without opening a digital wallet or checking the price of a single coin.
Enrique just published a video presentation with the full details... but it's only available for a limited time. Watch it right here before it goes offline.