Editor’s Note: This article was updated on July 19, 2021, to include the names of the other developers who all worked on two recent proposals.
Dogecoin (CCC:DOGE-USD) was scaling unprecedented heights in May. However, now it seems to be struggling for relevance.
As Bitcoin (CCC:BTC-USD), the largest cryptocurrency by market value, benefitted from massive institutional investment this year, the number of altcoins rose rapidly as well.
But few could have predicted the meteoric rise of Dogecoin, a meme-inspired altcoin that began as a joke in 2013 but recently surged in popularity. DOGE reached an all-time high of nearly 74 cents in May, much to the surprise of most market observers.
Dogecoin’s Celebrity Backers
The massive rise is due to several factors, thanks partly to well-known backers such as Elon Musk and Mark Cuban. The SpaceX and Tesla (NASDAQ:TSLA) CEO, in particular, is a fervent supporter of Dogecoin on Twitter (NYSE:TWTR).
It is hard to say if Musk’s support is serious at this point. However, his tweets have had a significant impact on their price and value. But it is important to be especially careful when investing in altcoins.
Bitcoin’s volatility is the price it pays for its restricted supply and its lack of a central bank.
But many of these assets are much riskier than Bitcoin and Ethereum (CCC:ETH-USD) because they lack inherent value or do not address real-world challenges that blockchain technology is poised to solve.
Therefore, DOGE needs to have more catalysts to succeed consistently. Elon Musk and other celebrities can only do so much.
Upcoming Upgrades and What They Mean For DOGE
It is safe to say that DOGE has slowed down considerably. But that hasn’t slowed down Dogecoin developers. They are all set to roll out a rather expansive upgrade for the cryptocurrency.
The Dogecoin developers, including Patrick Lodder, Ross Nicoll and Michi Lumin, introduced these two proposals, the first of which adds a host of useful features included in other blockchains such as Bitcoin. The second proposal includes a considerably lessened transaction fee that will reduce the average fee by 99%, among other things.
These updates will also introduce segregated witness (SegWit) to Dogecoin. SegWit separates the data used to verify transactions as valid from other data, increasing how many transactions can be in each block. Dogecoin is also adding a feature called “Check Sequence Verify” (CSV) that will allow it to scale its ability to handle higher transaction volumes greatly. The combination of SegWit and CSV will open up many new possibilities for Dogecoin.
Many analysts and developers have lamented the lack of developer activity on Dogecoin. But these updates will make the network more functional and increase capabilities, giving fans of the meme coin something to cheer for.
Social Media and Its Impact On Dogecoin
More than any other altcoin, Dogecoin has benefitted immensely from social media influencers. Undoubtedly, that has led to big gains for DOGE. But one wonders what the limits to this support are.
Just as an example, Musk was a huge supporter of Bitcoin as well. However, a couple of months ago, he soured on the crypto. Having previously purchased $1.5 billion worth of Bitcoin and allowed it as a payment option for Tesla, everyone assumed the romance would never end.
But, citing long-brewing environmental concerns, Musk reversed his views on BTC. “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” he tweeted. No prizes for guessing what happened to Bitcoin prices once his views became public.
The same thing can happen to DOGE. Perhaps Musk doesn’t like the specifics of an upgrade, or his enthusiasm for the developer team wanes. Several possible scenarios could see him rescind his support. If history is anything to go by, that will lead to a steep drop in DOGE prices.
Dogecoin Needs More Catalysts
Bitcoin’s success and growing visibility since its launch have resulted in many altcoins following in its footsteps. An estimated 14% of Americans currently own some form of digital currency like Bitcoin or Ethereum. Institutional money is also pouring in.
All of this is happening because these tokens are solving real-world issues. Some of them focus on instant transactions across borders with minimal-to-no fees while providing a hedge against inflation and a means of keeping the government out of your financial dealings.
Regardless of why you are purchasing crypto, you are doing it because it provides some form of utility. Dogecoin needs to focus on this element so that it can sustain its rally.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.