Whatever his intention, Elon Musk has put Dogecoin investors in a vulnerable position. Should Bitcoin holders be worried too?
On May 8th, the world eagerly awaited Tesla CEO Elon Musk’s Saturday Night Live (SNL) appearance in anticipation of him talking up the popular cryptocurrency Dogecoin to millions of people, and pushing it to $1 and beyond. What happened instead, came as a shock: Musk in one sketch described Dogecoin as a “hustle”, almost instantly bringing the price down from $0.65 to $0.45.
Hustled is what the majority of Dogecoin investors felt.
Prior to his SNL hosting debut, Musk, aka “The Dogefather'', had told his 53 million Twitter followers to “invest with caution” after encouraging them to get involved in the memecoin based on the Shiba Inu dog, which launched in 2013 as a satirical alternative to cryptocurrencies like Bitcoin and Ethereum.
While those who already held Doge got bamboozled and lost over 30 percent in a single day, newcomers with FOMO got taken for a ride. Scammers took advantage of curious first-time investors, with someone losing their home deposit of $12,000 through fake Dogecoin content.
And Musk does bear responsibility for it. After all, he played an outsized role in facilitating Dogecoin’s rapid rise; his name is now synonymous with it. As goes Musk’s Twitter feed so goes Doge, which should raise concerns about its long-term viability as a cryptocurrency.
Musk the market manipulator?
Crypto has been in the midst of a heady bull run, with massive interest from both retail and institutional investors since the pandemic hit. The cryptomarket has seen a huge increase in volume with Bitcoin - now dubbed “digital gold” - breaking all-time highs of $20,000 in December and headed north of $60,000 in March.
In the meanwhile, Dogecoin has found itself enjoying a meteoric rise. As of May, it’s been up a mind boggling 10,100 percent over the past year, and currently has a market capitalisation of $64 billion - larger than Ford and Twitter.
Social media has undoubtedly played a big role, with celebrities like Mark Cuban, Snoop Dog (or Snoop Doge) and Gene Simmons pushing regular folks to invest in doge. But it’s real take off point was in early April once Musk became its hype man, generating an even bigger cult-following for the coin.
Was there any logic behind it apart from Musk manipulating a new market with his huge platform on social media?
Earlier this year, Musk tweeted: “The most entertaining outcome is the most likely as seen from an external observer, not the participants,” possibly hinting at a plan for driving Dogecoin to become more popular than Bitcoin, regardless of those making or losing money.
If this were any other market, Musk’s constant Doge tweets would have landed him in hot water. But he isn’t the first and certainly won't be the last personality pushing crypto projects onto their followers; we only have to go back to 2018 to see elusive millionaire John Mcaffee get a tattoo of a cryptocurrency he invested in on his chest.
Musk has found himself at the centre of Bitcoin’s recent volatility too.
In February Tesla announced it purchased $1.5 billion worth of Bitcoin and would accept it as payment, leading the cryptocurrency to shoot up in value. But hardly after his SNL comments on Dogecoin, Musk then decided to backtrack on Bitcoin on grounds that it was bad for the environment (something he surely must have considered before the purchase). Bitcoin proceeded to shed more than 20 percent of its value.
He then tweeted to his many followers whether Tesla should accept payments in Dogecoin over Bitcoin, which would essentially amount to pumping Doge and dumping the price of Bitcoin.
So was his original decision to accept Bitcoin nothing more than just a PR stunt? Although Musk claims to be a staunch advocate for the cryptocurrency space, his actions seem to completely contradict each other.
Musk’s move sparked criticism from the crypto community, with some stating that SpaceX would have to switch its rockets to “more sustainable energy” to avoid looking like a “clueless big hypocrite”.
Although Musk has certainly influenced Bitcoin’s recent downturn, he isn’t the be-all-end-all. The harder “Black Wednesday” crash yesterday was likely news of China clamping down on crypto that caused over-leveraged traders to get liquidated, resulting in immense sell pressure for Bitcoin and the market generally.
Why Bitcoin isn’t Doge
With Musk drawing the world's attention to Dogecoin and Bitcoin, there are fundamental differences between the two.
Bitcoin was created by the anonymous Satoshi Nakamoto, who is otherwise irrelevant to the cryptocurrency’s development and stability after releasing it to the world in 2009. Meanwhile, one of Dogecoin’s creators recently mentioned how he created Dogecoin within 2 hours.
This is where the buzzword ‘decentralisation’ comes into the picture, which both projects were underpinned by before Dogecoin was enlisted into a personality cult. A cryptocurrency being decentralised meant no one entity controlling it, something Musk flaunts when a single tweet can significantly alter prices.
If this type of volatility seems familiar it’s because the retail crypto bubble of 2017 was driven by the same type of emotional reaction to projects that had no other use cases other than pure speculation.
A quick glance at the economics (or ‘tokenomics’) behind the two cryptocurrencies helps us distinguish them further.
Dogecoin has an infinite supply: there are 130 billion currently in circulation and is only set to grow. Approximately 10,000 Dogecoins are created per minute and about 15 million per day, which is close to Bitcoins total supply of 21 million that will ever exist. An inflationary supply can negatively impact the price of Dogecoin in the long run.
Another potential issue is that approximately 13 digital wallets own 50 percent of the whole Dogecoin supply, and one of these wallets has around 36 billion (nearly 30 percent) of the total supply. While this problem could also be applied to Bitcoin, these “whales” - or large holders - are more inclined to accumulate and hold with Bitcoin being scarce.
Whether we like it or not, people like Musk will always be involved in such emerging, unregulated markets. The cryptomarket is akin to the “Wild West” where meme coins and coins with actual fundamentals and real impact are all sharing the same space.
The most effective way to cope with these variables is to realise the long game at play.
Bitcoin has been around for more than a decade with the same limited supply and transformative fundamentals that is swiftly becoming a recognised asset for institutions and companies, regardless of whether Tesla sells its initial investment.
These same people will want the average investor to panic and sell in order to accumulate more Bitcoin for themselves. Musk might affect the price temporarily, but Bitcoin has a lot more going for it to be shackled by his tweets in the long-term.
While people have made life changing money investing in Dogecoin, the biggest risk for Doge is that there is one figurehead behind the project. And if he isn’t pumping the price up and sustaining the world’s attention with his tweets, then the future seems bleak for the most popular memecoin.
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