Retail and the Dogecoin Mania of 2021

Despite a 32% correction in one day, Dogecoin’s returns are impressive by any standard of measurement — 700% in the past month and 10,200% year-to-date. At the time of its all-time high of $0.73 very recently, the YTD was in excess of 15,000%. In a world where information travels faster than a speeding bullet, such soaring returns instantly grasp investor attention, particularly that of the retail segment.

This retail segment is hungry, often uninformed and much vulnerable to anything that appears to be an opportunity. Matters are made worse by extreme hype initiated by eccentric influencers’ endorsements and their army of followers on social media platforms, some of whom become victims of their own successes. Throw in an element of get-rich-quick and this vulnerable herd quickly FOMOs in without knowing the whereabouts of what they are putting their hard-earned money into.

So, is Dogecoin really an opportunity or just another coin shilled on Twitter?

In my opinion, Dogecoin is exactly what it was built to be — a joke coin. A joke coin with no real-world value, no formal whitepaper, and no fundamental use case. A coin whose creator sold all of his Dogecoin holdings for a used Honda Civic in 2015. You would know why if you think about this — Among the many problem-solving grounds on which cryptocurrencies have been created, the one which continues to make them most valuable is that their supply is limited by code, meaning that they are clearly scarce (akin to precious metals as an example). Every worthwhile cryptocurrency has a predetermined supply schedule available publicly. In the case of Dogecoin, that supply curve is infinite. Yes, the Dogecoin blockchain adds 5 billion new coins to the supply every year and there is no cap on when this will end. In contrast, the Bitcoin blockchain is hardcapped to only ever mine 21 millions coins and this is estimated to be complete in the year 2140. Similar caps exist for all the genuine cryptocurrencies.

Bitcoin Supply Schedule: The hard cap of 21mm Bitcoins is expected to be mined fully by 2140.

Besides, Doge holdings are suspiciously concentrated. At the time of writing, one single wallet address holds in excess of $20bn worth of Dogecoin, which comes to about ~28% of the total circulating supply. This is just INSANE! Take a look at the top 10 addresses, and you would have accumulated 45% of all Dogecoins currently in circulation. Such concentration gives few holders the power to move markets at their will. Perhaps, if community proclaimed ‘Dogefather’ Elon Musk himself realises it, the concentration is for real!

Snapshot of the Top 10 Richest Dogecoin Addresses

There can be a lot more written about what makes Doge the joke that it is, but I think the message is clear.

It is true that mass speculation on Dogecoin has made a lot of people very rich, but that might just be like how the tulip mania of the 17th century or the dot com bubble of the 21st did. I cannot say for certain if Dogecoin will meet the same fate as these, or if the fall will be faster or slower. But in the long-term, with further institutionalization of crypto and sophistication of the markets, it is difficult to imagine that coins like Doge will exist in the same dimension — just like the ICO bubble died in 2017 but the crypto ecosystem is stronger than ever in 2021.

As a new retail investor willing to participate in the crypto revolution, there are many avenues for one to pursue and invest in — from projects building the infrastructure for the future of finance & insurance to the ones solving complex supply chain problems using blockchain, as well as the ones redefining web-browsing and social networking. A lot of these projects are very nascent and hence undervalued. With adequate research & due diligence, one might be able to identify and realise the vastly untapped potential of these gems — those that will last for the times to come and when the memes are over.

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Aditya Jalan

Markets at FalconX, Ex-Market Risk Strategist at Goldman Sachs, MBA (Finance) — IIM Indore