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Back in 2013, Nic Carter’s first foray into digital currency was mining Dogecoin in his university dorm space.
The meme-inspired token seemed to be more fun than Bitcoin and its diehard crowd since it was created as a joke with the Shiba Inu dog breed as its logo.
The 28-year-old now runs a crypto data provider that counts Goldman Sachs Group Inc. among its investors. He’s lost access to a trove of Dogecoin that has surged roughly 200,000% since the token’s inception. But like many industry pros, these days he has little affection for the coin — and has lost no sleep over his trapped profits.
“There’s this parallel industry of people that are just interested in running glorified bucket shops,” said Carter, co-founder of Coin Metrics based in Boston. “For most of us, we’re in this for ideological reasons. It doesn’t really affect us.”
The Dogecoin frenzy is reaching fever pitch as Elon Musk prepares to host Saturday Night Live with speculation he’s poised to talk up his beloved token. Coinbase Global Inc., the largest U.S. digital-asset exchange, plunged to a record low Thursday partly because it doesn’t offer enough speculative coins like Dogecoin. Robinhood, a trading app that offers the token, reclaimed the top spot on Apple’s U.S. App Store.
Although its meteoric growth resembles that of Bitcoin, crypto purists like Carter fear it would divert attention away from their grand project of deploying blockchain technologies to revolutionise global finance with everything from digital currency to tokenized art. The memecoin does not help institutions take crypto seriously despite being far too dangerous for portfolios for those attempting to entice big money into the market with old-school risk controls.
Dogecoin is off-limits at BKCoin Capital, a $60 million quant fund established by Kevin Kang.
“This could well be a ‘sell-the-news’ event where large holders sell before his appearance on SNL, leaving retail investors with the losses,” he wrote in an email, referring to Musk. “There’s nothing beyond this speculative asset — there are no developers on it, and we’ve not seen ‘smart money’ or institutional investors allocating.”
None of Bitwise’s custodians will contact the token before Gemini, the crypto firm established by the Winklevoss twins, declared Tuesday that it would fund it. As a result, the company could not be certain that its holdings were secure for its more conservative customers.
“There are concerns that its spectacular rise indicates that the market is somehow overheated,” said Matt Hougan, chief investment officer at Bitwise and a specialist on exchange-traded funds. “I think it’s beautiful that a portion of the internet community wants Dogecoin to exist and will use it among themselves. Although I don’t believe it poses a danger to Bitcoin’s systemic global scale.”
Dogecoin surged 96% in the past week, Coinmarketcap data show, a move largely seen as the epitome of a speculative frenzy spurred by massive stimulus spending and social-media chatter. Over the same period, Bitcoin has risen 4%.
Even Musk on Friday urged his followers on Twitter to “invest with caution,” linking to an earlier video in which he said crypto should be considered speculation for now.
While outsiders might paint all digital assets with the broad stroke of newfangled excesses, critics in the know see fundamental distinctions.
Whereas Bitcoin was the pioneer for distributed ledger technology, Dogecoin grew out of that. There’s also little coding activity on the latter, a sign of stagnation to critics. Unlike Bitcoin, supply isn’t finite, and there are still relatively few Dogecoin transactions, a symptom of its essentially speculative nature
“There are question marks around the general status of the software around Dogecoin,” said Konstantin Richter, chief executive officer and founder at Blockdaemon, a blockchain infrastructure provider. “It’ll catch up. If Doge is super valuable and people can make money building applications on it, they will.”
There are some cases where perhaps the buzz can inspire practical use. Mark Cuban, the billionaire owner of the Dallas Mavericks and Dogecoin booster, said at the Ethereal Summit on Thursday the basketball team has sold more merchandise denominated in the token than it did for years in Bitcoin.
It can be difficult for crypto enthusiasts to support one while dismissing the other. Over all, it’s difficult to know whether crypto assets with use cases, such as Ethereum or Uniswap, are growing for technical reasons, ideological reasons, or merely because a wave of cash has entered the nascent market.
In any case, the utter futility of Dogecoin is irrelevant to certain funds as long as there is uncertainty. Yuval Reisman, co-founder of YRD Capital, a company that invests in algorithmic strategies, says traders have recently joined the fund to benefit from the difference between Dogecoin’s spot rate and futures.
Carter at Coin Metrics, who has 137,200 Twitter followers and has been in the crypto industry for four years, has gone from insurgent to mainstream. He found that Dogecoin has mostly appealed to younger people who trade on Robinhood, prefer TikTok to Twitter, and regard Bitcoin as antiquated. He also believes it has gained new supporters because its low unit price of 61 cents makes it seem less daunting than Bitcoin at $57,340, despite the fact that day traders will only purchase a fraction of the latter.
Carter, recalling the Dogecoin he already has elsewhere, emphasises that Bitcoin aficionados like him have no regrets over ignoring the puppy.
“You have to accept the fact that nonsense will continue to rise,” he added. “That isn’t my problem. My priority is to make Bitcoin as stable and functional as possible.”
— With thanks to Joanna Ossinger and Sam Potter.