Bitcoin surged to a new all time high after Testla said it will start accepting the cryptocurrency as a form of payment.
What does the world’s richest person buy his baby? Cryptocurrency, apparently. Tech magnate and Tesla CEO Elon Musk tweeted the latest in a long string of social media posts boosting the prospects of Dogecoin this week by saying he planned to keep it in the family.
“Bought some Dogecoin for lil X, so he can be a toddler hodler,” Musk wrote on Twitter, using crypto slang to explain how he hopes his son will “hold on for dear life” to the digital asset known by its logo, a Shiba Inu dog.
But while Musk has lauded the joke currency with a number of memes — “D is for Dogecoin!” and “Who let the Doge out” among them — he has also suggested that the “people have spoken” about the pitfalls of fiat currency and extolled the virtues of bitcoin. Tesla’s announcement that it had bought $1.5bn in bitcoin and would accept the cryptocurrency as payment sent it rocketing above $48,000 this week.
Meanwhile, the value of one Dogecoin, expressed in United States dollars, climbed eightfold, from under one cent on January 26 to almost eight cents this week. Its proponents aim to pump the price up to $1; meanwhile, bitcoin’s market capitalisation is around 100 times Dogecoin’s $8.9bn pile.
Memes aside, Musk — who is best known for his disruptive ideas as the CEO of both Tesla and SpaceX — is wagering that cryptocurrency is also financially redeeming in two ways: as a stable store of value for investors and as a reliable medium of exchange that can rival the dollar in everyday economic transactions.
While many sceptics question Musk’s attempts to bridge two major early-adopter consumer demographics — electric-vehicle aficionados and crypto enthusiasts — naysayers are hard-pressed to deny his capacity to influence demand and shake up the economy.
“Dogecoin is headed in whatever direction Elon Musk wants it to head in,” said Glen Goodman, author of The Crypto Trader. “Its current price rise is driven purely by Elon’s tweets.”
However, the crypto expert doubted the rationale of some of Musk’s recent promotional efforts, including gifting his nine-month-old cryptocurrency. “As if the son of the richest man in the world needs a little investment account for his future!” Goodman quipped.
Bought some Dogecoin for lil X, so he can be a toddler hodler
— Elon Musk (@elonmusk) February 10, 2021
But for non-billionaires who are casting their lot with crypto, there is risk, of course.
“If Musk grows tired of the joke at some point, don’t expect the joke crypto to keep rising,” Goodman told Al Jazeera.
Goodman explained that cryptocurrencies do not have revenues and profits on which to base a fair valuation, differentiating them from securities like stocks and bonds.
“Their value is determined by supply and demand for their tokens,” Goodman said, likening them to commodities such as precious metals. “And most cryptocurrencies benefit enormously from network effects, which means they work more effectively if there are more people using them.”
At least two users who replied to Musk’s tweet said they had lost money after buying Dogecoin.
“i spent all of my school money on doge and I sold at a loss. Please Elon dont trick others like you tricked me,” @Skelkjaerr tweeted.
While rapid adoption by a user base and mining community can add security for a cryptocurrency, Goodman cautions that any of them can become “trapped in virtuous circles of growth or vicious spirals of decline”.
Dogecoin is headed in whatever direction Elon Musk wants it to head in ... If Musk grows tired of the joke at some point, don't expect the joke crypto to keep rising.
Dogecoin has few supply constraints – unlike bitcoin, which is limited to a maximum of 21 million units – but is prone to the same volatility afflicting other cryptocurrencies. Detractors point to the lack of technological sophistication at Dogecoin, making it less attractive than other cryptocurrencies with more innovative software.
‘Rival bitcoin someday’
But diehard Dogecoin fans are committed to their cause. In one Facebook group, Livin’ on a Doge, users eagerly await every sign from Musk that their beloved asset will keep moving “to the moon” — crypto parlance for infinite increase in value.
One Islamabad-based user, Shamim Khokaywala, posted, “Am in Pakistan, how do I buy Dogecoin?” A user in India, Rajat Mishra, responded that he should head to CoinSwitch, an instant cryptocurrency exchange where bitcoins and altcoins can be traded anonymously.
Earlier this week, a user in Lagos posted, “Am in Nigeria, how do I mine Doge?” In response, Jacob Green, a crypto fan in the US state of Georgia, provided information on how to generate Dogecoins with either a “mining pool” of personal computers running on top-notch hardware or “a literal mining farm”. He recommended sites like Prohashing.com and Awesome Miner.
Green told Al Jazeera that Musk’s involvement “is definitely launching $Doge to new heights”.
“For what was essentially a dead coin based on an old meme, it is now being pushed to get accepted as currency in businesses and used for tipping/trading online,” Green added. “It may very well rival BTC [bitcoin] someday and we are all in at the ground floor!”
“[The] future looks bright for the crypto and all who bought in on the initial rush of popularity,” he added, referencing the same meme appeal that resonates with Reddit-driven GameStop devotees.
Dogecoin investor Edward Vincent Fernandez, of Lodi, California, struck a more vociferous but no less optimistic tone.
“It’s pointless if everyone sells right after [the moment] when they have enough to buy a new video game to play while they’re in their mom’s basement,” he said.
“Ride out the dips!” Fernandez told Al Jazeera. “You’re making [chump] change when you can [instead] make real money! Hooooold!”
But even risk seekers cannot ignore the warning prominently displayed in that Facebook group’s mission statement: “Only invest what you’re willing to lose and on your own free will”.
“This page is strictly for Dogecoin talk only,” it says. “Any Dogecoin bears will be deleted,” it adds, referencing the lack of interest in hearing viewpoints that oppose their bullish consensus.
For what was essentially a dead coin based on an old meme, it is now being pushed to get accepted as currency in businesses and used for tipping/trading online. It may very well rival BTC (bitcoin) someday and we are all in at the ground floor!
Bitcoin rocketed toward $50,000 this week after Tesla disclosed its increasingly symbiotic relationship with the largest cryptocurrency. It was good for Tesla’s share price, too: the value of the company rose $8bn, while the total value of bitcoin catapulted by about $90bn.
Yet critics of Musk’s crypto affinity are quick to point out how his climate-friendly electric vehicles contrast with bitcoins that require a huge amount of energy to produce.
Mining for cryptocurrency involves complex computer calculations to verify transactions made by users who send or receive the coins. Complicated puzzles also make sure that the public ledger is not compromised. All of this computing requires massive amounts of electricity to power computers as well as keep them cool.
“Ride out the dips! You’re making (chump) change when you can (instead) make real money! Hooooold!”
Bitcoin is estimated to use more than 127 terawatt-hours of electricity per year, according to modelling by the Centre for Alternative Finance at the University of Cambridge.
But bitcoin defenders say that the fiat currency system as a whole requires far more electricity to maintain — when adding up the power needs of banks and other institutions whose equipment and employees keep the dollar dominant.
Cambridge University researchers acknowledge it is impossible to know how much electricity bitcoin uses for a variety of reasons, and more data is needed to determine its environmental impact as a whole. For example, some bitcoin miners use renewable energy sources to power their operations. Either way, many newer cryptocurrencies use mining protocols that are less energy-intensive and taxing on the environment.
Crypto devotees say the currencies represent the economy of the future. But ultimately, their value depends on their limited supply and the number of people who chase after them.
So far, Musk’s ability to capture investor attention has given cryptocurrencies large and small a shining light to bask in. But it remains to be seen whether Doge demand will keep barking up its price.