Dogecoin’s (CCC:DOGE-USD) winning streak keeps on rolling. After a sell-off last week, the price of Dogecoin has come roaring back to life. That’s contrary to the expectations of many cryptocurrency experts.
After all, it wasn’t supposed to be this way. It’s well-known that Dogecoin started as a meme rather than an actual investment. Yes, it was fun when Dogecoin surged to as high as 40 cents on a flurry of social media activity earlier in April. But then the price fell back to 14 cents on heavy selling and traders assumed that was the end of the line.
However, the old doge has learned some new tricks. Dogecoin’s price has bounced back above 30 cents and could make another run at its all-time highs in coming days.
For believers in the efficient markets hypothesis, Dogecoin must be mighty frustrating. After all, most observers would argue that Dogecoin has little inherent value. So why is it trading with a comparable market capitalization to Chipotle (NYSE:CMG) or Ferrari (NYSE:RACE)?
Publicity Creates Value
If you believe cryptocurrencies are valued based on the quality of their development teams or white papers, Dogecoin’s rise is perplexing. However, if you view Dogecoin more as a product riding a huge wave of media buzz, it makes sense. The really great part about Dogecoin is that it reveals some fundamental aspects to the current cryptocurrency environment.
Dogecoin’s creator didn’t intend for it to serve a serious purpose. It was designed as a meme from the start, intended for humor and entertainment. To that extent, it has succeeded beyond anyone’s wildest expectations. Dogecoin exists in such as an audacious way that even some passionate crypto bulls look on with bewilderment as the price of Dogecoin soars. Why isn’t this fanfare occurring in a more useful cryptocurrency?
Yet, when you look at many crypto projects today, they serve the same level of actual functionality as Dogecoin. Sure, most other coins have more white papers and long-term plans behind them. There’s a lot more technical jargon you can point to. But in terms of adoption in the broader financial system, little beyond Bitcoin (CCC:BTC-USD) or Ethereum (CCC:ETH-USD) has really made big inroads yet. So Dogecoin isn’t actually that far behind the pack.
Crypto: Still A Young Ecosystem
In recent years, it seems that many things that go mainstream in crypto are arguably memes or flash-in-the-pan projects. Think of things such as Crypto Kitties, Bitconnect, or, most recently, non-fungible token (NFTs) based art.
Meanwhile, there’s much less discussion of the relative merits of various cryptocurrency projects. You can find some engineers and so on debating the intricacies of various altcoins, but it’s not as commonplace. You certainly haven’t needed a detailed understanding of computing or blockchain technology to make money in crypto up until now.
On the other side of the equation, there are countless extensive discussions of, say, the merits of various software-as-a-service (SaaS) companies or competing semiconductor producers such as Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). It’s harder (though certainly not impossible as r/WallStreetBets has shown us) for a stock to survive simply on memes and positive energy alone. But, at least for now, Dogecoin keeps riding strong despite its underwhelming fundamental or technological qualities.
All this is to say that cryptocurrency enthusiasts should relax and embrace the meme. Right now, the cryptocurrency market hasn’t yet evolved to reach the same level of nuance as more mature financial markets. Arguably, that’s a feature, not a drawback. It’s a free market and over time the best projects will win out. For now, outside the heavy regulation of traditional financial markets, unusual things like Dogecoin can take on a life of their own.
Sure, Dogecoin is in-your-face about how silly it is. Yet is Dogecoin actually much less useful than, say, Ripple (CCC:XRP-USD), to cite another controversial altcoin? You can use Dogecoin to buy some things. Additionally, Dogecoin has secured high-profile marketing arrangements such as the Dallas Mavericks basketball team accepting Dogecoin for tickets.
Mark Cuban recently announced that BitPay, the payment processer the Mavericks use, is on pace to handle 6,000 transactions using Dogecoin this month. That’s actually quite an impressive tally.
If enough people believe that Doge has value, over time, some actual use cases will develop for it. That’s what’s so fascinating about cryptocurrency right now. Something that seemed to be pointless, like Dogecoin, is actually becoming a major player. Meanwhile, altcoins with seemingly far more serious white papers and developer teams struggle to get off the ground.
Particularly for a novel market like this one, publicity can actually create value. Dogecoin is showing us how to do it.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.