2800% returns YTD! What's happening with Dogecoin?

2800% returns YTD! What's happening with Dogecoin?

"Dogecoin is a community driven cryptocurrency at the moment and the value is being determined by power and influence on social media by influencers," says Monark Modi, Founder and CEO, Bitex

  • May 8, 2021  
  • |  
  • UPDATED   10:02 IST
2800% returns YTD! What’s happening with Dogecoin?
Dogecoin breaches 10 cents for the first time ever

For the second consecutive day, Bitcoin has breached its all-time high. On Wednesday, the world's largest crypto currency crossed US$ 64,000 level for the first time. Following suit, Dogecoin, which originally started as an internet parody over seven years ago surged 85 per cent in a day. The meme coin has breached 10 cents for the first time ever. It touched an all time high of US$ 0.145, according to CoinDesk. Its market cap is now close to $16.5 billion, ranking 10th across VCs. Why is the Dogecoin price rising? Like Bitcoin and Ethereum, is it another virtual currency which has the potential to capture great gains going ahead? Well, experts don't believe so.

"Dogecoin is a community driven cryptocurrency at the moment and the value is being determined by power and influence on social media by influencers," says Monark Modi, Founder and CEO, Bitex.

Tesla Chief backs Doge. Elon Musk does not stop tweeting about crypto including Dogecoin. Here's his April 10 tweet:

Dogecoin has trended in the past, after tweets from Elon Musk and coordinated buying by Reddit communities. "When you have a coin with no real use case, it's just pure price speculation," says Vikram Rangala, CMO, ZebPay. When Bitcoin and Ethereum hit new all-time highs, traders tend to get excited about other coins, too, he adds.

Of course, some would argue that speculation is a valid use case. Rangala believes, Dogecoin is perfect for that purpose, since the price is in single digits, which makes it look cheap to new traders. However, unlike Bitcoin, Ethereum and other virtual currencies,  the coin has no underlying value. It was created to have fun with internet memes and later on a community grew around it.

"Bitcoin, for example, is a breakthrough accounting method combined with inflation-proof store of value and payment system that gets rid of middlemen. That's a lot of underlying value. Dogecoin's underlying protocol exists simply to produce the token, so there's not much to go by," says Rangala. Maybe beauty and junk are both in the eye of the beholder, he adds.

In absence of an underlying value or a specific use-case, does it make sense for people to invest? How long can this fun coin hold this run? According to industry experts, buying Dogecoin in the hopes of quick profits is not investing, it's speculative trading.

"As Dogecoin is purely community driven as of now, it is not likely to receive any institutional adoption at the moment. This is also given due to the fact that unlike Bitcoin, there is no limit to the number of Dogecoins that will be created," says Modi.

He adds, "The fair price for any cryptocurrency can be calculated on the earning expectations or the dividend yields and none of these can be seen structured for this coin right now. Also there is no technical team or a roadmap to consider its qualitative factors as well."

But, if someone is looking to speculate, especially during a rally, as per Rangala, he or she should be clear about what it is: a meme coin without an underlying use case, which has value mainly based on the enthusiasm of traders. "This isn't necessarily bad or good. A lot of things have value simply because many people say they do," he said.

A few people are good at trading, but most are not. Rangala reminds a general rule of successful traders. He says, "Only trade with money you can afford to lose. Because what goes up easily can come down just as easily."

Also read: Bitcoin hits record high at $62,741

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