In the unconventional world of cryptocurrency investing, where prices fluctuate wildly and regulation is largely non-existent, a coin manages to stand out as something of an underdog.
Dogecoin, also known as DOGE, is based on a viral internet meme of a Japanese Shiba Inu and was originally created as a joke version of Bitcoin. The coin’s official Twitter bio states, “Dogecoin is an open-source, peer-to-peer digital currency favored by Shiba Inus worldwide. Elon Musk thinks we’re pretty cool.”
Despite its playful origin story, Dogecoin is just as volatile as any other type of cryptocurrency, hitting an all-time high of 73 cents in May 2021 before plunging 78% just a year later. At the time of writing, it was trading for about 6 US cents.
Does this mean Australian investors should jump in and ‘buy the dip’ now? Or is now the moment to stay away from it in anticipation of a long crypto winter?
And if so, should the entire cryptocurrency concept be as broad as possible? At least, that’s what the Australian co-creator of Dogecoin thinks. Yes, you read that right: Dogecoin founder Jackson Palmer is no longer a fan of crypto, claiming in a recent interview that the asset class is “parasitic” and a fraudster’s haven.
Here’s what you need to know about Dogecoin so you can make up your own mind.
First, the (essential) crypto wealth warning
If your financial plans require you to get a good night’s sleep, cryptocurrencies are definitely not for you. And it’s not just Dogecoin that worries authorities: Even the “mainstream” cryptos are a cause for concern, according to Australian consumer advocacy group CHOICE.
CHOICE calls for regulations to better protect consumers and argues in a submission to the federal government that cryptocurrencies should be subject to the same consumer protection obligations as traditional financial services.
“As it stands, enforceable protections in the unregulated cryptocurrency market fall somewhere between negligible and non-existent,” CHOICE notes.
And there are many in the broader global financial community who have concerns. For example, Susannah Streeter, senior investment and markets analyst at UK financial adviser Hargreaves Lansdown, says: “When people try products they don’t fully understand, they risk losing all their money.”
Therefore, not only are cryptocurrencies notoriously volatile, but unlike other parts of the financial services market, investors are not entitled to compensation if things go wrong.
However, some injured former investors are demanding compensation. US investor Keith Johnson is suing Elon Musk for $258 billion, claiming Musk lost around $86 billion to investors through his enthusiastic promotion of DOGE on Twitter.
Fair enough. But what is Dogecoin?
That brings us back to Dogecoin, a cryptocurrency popular with amateur investors that Musk has even dubbed a “people’s crypto.”
Dogecoin (trade sticker DOGE) was invented in 2013 by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer (mentioned above). Their goal was to create a hoax version of the already established Bitcoin to provide a friendly way for the public to get acquainted with the world of crypto assets.
To the surprise of the engineers, people started using Dogecoin as soon as the product was released. However, crypto experts claim that the underlying technology and general usefulness of the cryptocurrency are not comparable to those of Bitcoin and Ethereum.
How did Dogecoin develop?
If Dogecoin started out as a joke, the numbers underpinning the cryptocurrency are dead serious.
Dogecoin’s value is up more than 14,000% since the beginning of 2021, hitting an all-time high of more than 70 cents. Since May 2021, however, Dogecoin’s price has been in freefall, pumped up by occasional writing from Elon Musk, but otherwise in a distinct downward spiral. It’s currently worth around 6 US cents, while price-tracking website CoinMarketGap puts its market cap at around $8.8 billion – up from a peak of $70 billion in 2021.
In comparison, it lags relatively behind the big two: Bitcoin with a market cap of $385 billion and Ethereum with $138 billion.
What Triggered Dogecoin’s Price Actions?
In 2021, Dogecoin’s standing has been boosted by tongue-in-cheek endorsements from high-profile show business names, including rapper Snoop Dogg and rock group Kiss frontman Gene Simmons.
More importantly, a 2019 Twitter poll decided that Elon Musk should become Dogecoin’s chairman. The Tesla boss saw the funny side and has played along ever since, issuing supportive tweets saying that Dogecoin is his favorite cryptocurrency.
With his personal Twitter account boasting 100 million followers, even a cursory pro-Dogecoin comment from Musk has the effect of boosting the cryptocurrency’s popularity and hence its investment appeal.
In a recent tweet, Musk went so far as to refer to himself as “The Dogfather.”
How to buy Dogecoin in Australia
As Dogecoin’s popularity has increased, so has its availability. Australian investors can buy the cryptocurrency in AUD via bank transfer or credit/debit card on a variety of exchanges including Binance, Swyftx or FTX.
More recently, fellow online brokers Gemini and eToro also announced that Dogecoin is now available to buy through their platforms, expanding the potential number of Australian investors who might decide to get involved.
Should You Buy Dogecoin?
When it comes to cryptocurrencies of any kind, financial professionals advise caution.
After all, any asset that is potentially valued simply because of a mention during a prime-time TV show or social media thread is worth pausing before hitting the buy button.
You can also be a victim of foul play. For example, on Christmas Day 2013, 30 million coins were stolen as part of a cyber attack on the online platform Dogewallet.
Damage totaled $16,000.
Laith Khalaf, Financial Analyst at AJ Bell says, “Dogecoin is somewhat the embodiment of cryptocurrency, having started as a joke and is now increasing in value. This shows how difficult it is to predict with any degree of accuracy which cryptocurrencies, if any, will end up staying the course.
“That kind of reckless, carefree approach to life is absolutely commendable in the context of a little entertainment, but it doesn’t make such a good bedfellow for sound financial planning.”
Hargreaves Lansdown’s Susannah Streeter is similarly cautious: “Investors should be extremely careful not to get caught up in this herd mentality because Dogecoin is a very speculative bet with no reliable basis for valuation.
“Demand came from traders trying to ‘play’ the system and others hoping to cash in on future price increases rather than using the coins as a medium of exchange. It is very difficult, if not impossible, to predict the point at which demand will drop and prices will start falling.”
And as with many fad investing opportunities from the tulip fever of the 1630s to the dot.com bubble of the early 2000s, there is a fear of missing out.
Whatever you decide, the clear opinion of financial professionals is to only invest what you can afford to lose.
This article is not an endorsement of any particular cryptocurrency, broker, or exchange, nor is it a recommendation of cryptocurrency as an asset class.