Dogecoin (CCC:DOGE-USD) has been the most exciting cryptocurrency of the spring.
The coin, originally created as a joke, then pushed as a tip, traded at less than a penny in January. You could still get one for 6 cents in early April. Then small investors and Elon Musk of Tesla (NASDAQ:TSLA) got involved and the price skyrocketed to over 73 cents in early May. People talked of it going “to the moon.”
It didn’t. Dogecoin was trading June 14 at about 32 cents. That’s great news if you were sitting on some at the pre-2021 price. If you bought in at the height of the boom, you lost the game.
That’s the point. Dogecoin is a game token. It’s not real. But that does hold some important lessons for real markets.
Too Much Cash
The first lesson is that there is a lot of loose cash lying around.
The 2017 tax cut and multiple rounds of Federal Reserve stimulus have pushed asset prices to the moon. If you own assets, it’s happy days. If you didn’t get in on the cash giveaways, you’re out of luck. Good stocks are at silly prices, and homes are completely unaffordable.
But Dogecoin is cheap. People who bought it for that reason have made serious money. You could play the April run-up cheaply. Even today you could own about 10,000 DOGE for the price of one share in Amazon (NASDAQ:AMZN).
That means there are lots of sudden millionaires in Dogecoin. On Reddit this means it’s “the people’s coin,” a way to stick it to the man.
But the man is now Musk. His tweets supporting Dogecoin sent it higher. His Saturday Night Live appearance, where he dissed Dogecoin, sent it crashing. Musk is now worth over $150 billion. Most if it came during 2020, when Tesla jumped from under $100/share to a high of nearly $900. SpaceX was estimated to be worth $74 billion in April, and Musk owns about half of it.
Feeding Cynicism
Musk can move markets. But Musk doesn’t care. He treats markets as a joke, and investors as marks. This makes him a hero to those who believe the game is rigged. He looks like Robin Hood.
But he’s more like Dennis Moore, the Monty Python character from a half-century ago. In the sketch, Moore steals from the rich until the poor he’s supporting become rich themselves, and the rich become poor. The punchline has him saying, “This redistribution of wealth business is trickier than I thought.”
In other words, Musk is now “The Man.” He’s laughing at you, using your own cynicism against you. He’s not even a real millennial. He was born in 1971, in apartheid South Africa, on the white side of the street. He turns 50 in two weeks. He’s creating what Wayne Duggan calls a pyramid scheme for the sheer fun of it.
The Bottom Line on Dogecoin
The success of Dogecoin points to a worrying trend in both the markets and society.
There’s too much cash chasing too few opportunities. There’s too much supply and not enough demand. This makes investors easy to manipulate. It makes the whole concept of money seem silly.
Money only has value when it is exchanged. It’s active, not passive. Musk understands this. He’s using his money to build giant factories and launch spaceships. He’s not waiting for a hero.
What could end the reign of Dogecoin is the creation of real demand, whether that’s for social good or something else. The money in Dogecoin will either be used for something tangible, or it will keep going down the drain.
On the date of publication, Dana Blankenhorn held LONG positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
