The price of Dogecoin rose as much as 33 percent on Dec. 14 after Tesla CEO Elon Musk sent out a new market-moving tweet saying he would accept dogecoin as payment for some of his merchandise. Dogecoin rose from around $0.15 to more than $0.21 following Musk’s tweet, before falling back to around $0.18.
“Tesla will make some merch buyable with Doge & see how it goes,” Musk tweeted.
The tweet echoed an earlier market-moving announcement on May 24, 2021, when Musk said Tesla would start accepting bitcoin as payment for its electric cars. Shortly after, Musk did a U-turn citing concerns about Bitcoin’s environmental impact and energy intensity. When Musk nixed bitcoin payments, hundreds of billions of dollars were wiped off the entire cryptocurrency market within three hours.
Dogecoin is a payment system created in 2013 as a joke to make fun of the speculation in cryptocurrencies. It is considered the first meme coin based on a viral internet meme of a Shiba Inu dog. Dogecoin’s price stayed relatively flat for eight years at thousandths of a cent until January 2021, when it started going up. By April 2021, price action was increasing significantly.
Dogecoin reached an all-time high of $0.7376 on May 08, 2021, according to Coinmarketcap. In the process, its market cap rose higher than companies such as Twitter and Ford, “but it doesn’t have any utility, and it doesn’t have any paid staff,” Motley Fool reported.
Musk, who considers himself “The Dogefather,” tweets regularly about Dogecoin.
In February, Musk predicted the price of Dogecoin was “going to the moon,” a term for an asset-price surge, Coindesk reported. Prices jumped. In May, he tweeted that he was working with Dogecoin developers to improve system efficiency, sending Dogecoin prices up 22 percent. In June, he tweeted that it was “important to support” a proposal to reduce dogecoin fees to make Dogecoin more competitive.
Not all influential investors are pumping dogecoin. Some have been predicting that the price will fall.
Crypto pioneer and early adopter Barry Silbert announced on May 8, the day Dogecoin reached its all-time high, that his company had shorted Dogecoin. Short selling allows investors to profit when an asset decreases in value. Silbert is the founder and CEO of Digital Currency Group, a conglomerate of five crypto-focused companies, whose biggest revenue generator, digital asset manager Grayscale, oversees $28 billion worth of Bitcoin, Ether and other assets.
Some short sellers use this investment strategy when they don’t have enough money to acquire the asset and subsequently sell it for a profit. Shorting Dogecoin involves selling off your Dogecoin at a profit and repurchasing it when the prices drop.
Silbert advised Dogecoin holders to move their assets into Bitcoin, tweeting on May 8, “Okay $DOGE peeps, it’s been fun. Welcome to crypto! But the time has come for you to convert your DOGE to BTC.” Several Redditers blamed Silbert for Dogecoin’s dip.
Dogecoin may not do anything unique to explain its meteoric rise, but it garners considerable retail investor attention, following in the footsteps of other financial fashion fads presenting themselves in 2021, such as GameStop (GME), SPACs or non-fungible tokens (NFTs), according to Kiplinger.
“Dogecoin’s journey requires suspended disbelief,” wrote Riley Adams, a licensed CPA who works at Google as a senior financial analyst.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?