Dogecoin has been one of the hypest coins as of late. Fair enough, it’s hard to pass by a crypto pushed “to the Moon” by the richest earthlings, rock stars, and common Redditors who raked billions on it. Dogecoin generated more money in a year than Walt Disney sales. Its market cap exceeds Ford company and the annual GDP of Tanzania. Much wow!
So what are the drivers of Doge growth? What value does it have? Why is it so receptive to Elon Musk’s tweets? Short answer: behavioral finance. We’ll elaborate on that in a moment.
What is DOGE?
Started off as a joke, Dogecoin was created in 2013 by software developers Billy Markus and Jackson Palmer. It exists on a Bitcoin blockchain. The symbol of this coin is a viral meme picturing a Shiba Inu dog (Japanese breed) along with intensifying modifiers like “much”, “very”, “such” and improper grammar.
Doge was a celeb even before the crypto. It appeared on a NASCAR car, and even in tweets of the members of US Congress. And despite the experts pointing at Dogecoin’s technical unreliability, this crypto has become the people’s coin in a wink. Or should we say, in a tweet.
Dogecoin uses development algorithms similar to Litecoin including a simplified scrypt key derivation function as its proof of work. It is possible to mine one block of DOGE per 1 minute.
Behavioral finance and DOGE
Behavioral Finance, as its name suggests, studies financial behavior. One drawback of the traditional economic school is that it goes without saying that people only make rational decisions on financial matters. In actuality, even the most professional trader may fall victim to their emotions, cognitive biases, and social influence. At CEX.IO, we even made a real experiment, Trader for a Month, to see how biases play out in practice!
Dogecoin market dynamics is a striking example of behavioral finance.
The largest stake of DOGE is currently worth $25 billion. One of the Reddit users claims to have raised $460 million out of a $180,000 investment in DOGE.
DOGE has risen 14,000% since the beginning of the year and 48,900% rise since inception after Elon Musk has become the self-proclaimed Dogefather and started endorsing this coin on Twitter.
Elon Musk’s DOGE Tweets influence:
| Date | Tweet | Price From | Price To | Rise % |
| January 28, 2021 | Dogue magazine cover | $0.0078 | $0.0610 | 682% |
| February 4, 2021 | Dogecoin is the people’s crypto | $0.0314 | $0.0451 | 44% |
| February 7, 2021 | Who let the Doge out | $0.0491 | $0.0769 | 57% |
| April 14, 2021 | Doge Barking at the Moon | $0.0766 | $0.3299 | 330% |
| April 28, 2021 | The Dogefather SNL May 8 | $0.2747 | $0.6618 | 140% |
Common biases in behavioral finance and how they show in DOGE:
- Confirmation Bias
In behavioral finance, it is a tendency to pay close attention to events that confirm the investor’s belief and ignore ones that contradict it. In the case of DOGE, it means paying attention only to the news that says about DOGE growth and ignoring bad news.
- The Narrative Fallacy
We all love a good story. And a good joke. A cryptocurrency dedicated to a meme bringing you billions overnight – what can be better? However, in a run after a good story, some investors forget about safety measures.
- Representative Bias
This bias occurs when an investor thinks that two resemblant events will bring the same outcome. It may apply to the people’s bias that Dogecoin is similar to Bitcoin. So, one may suggest that Elon Musk will influence the DOGE price and adoption the same way that he influenced those in Bitcoin when indeed BTC and DOGE are quite different from each other.
- Herd Mentality
In behavioral finance, this principle refers to the tendency of many investors to do the same actions that the crowd does. This one is all about social influence and emotion. Amateur investors tend to trust Elon Musk’s Twitter more than the rational analysis of the situation. They also see a surge of demand for DOGE and a rising price, and decide to buy too, since “everybody does it”.
Conclusion
Dogecoin continues surprising the world every day. Elon Musk went so far in his Dogefather role, that he is to send a Doge-1 satellite to the Moon, for which he already paid in DOGE.
We strongly recommend that you perform thorough research before doing anything with Dogecoin. We’ve started compiling the list of DOGE pros and cons. What statements would you add or argue? Let us know on our social media channels.
Dogecoin Pros and Cons
| Pros | Cons |
37% belongs to small pools meaning that the mining of Dogecoin is quite decentralized |
One address holds 28,36% of the entire DOGE circulating supply, meaning that selling it can potentially crash the market |
Elon Musk, Mark Cuban, Gene Simmons, Snoop Dogg, Kevin Jonas & more |
Audience’s negative reaction to these celebs may drop the price |
You can pay in DOGE for a gift card in BitPay (spend in Pizza Hut, Amazon, Microsoft), for Dallas Mavericks tickets & merchandise |
There are few crypto exchanges that support DOGE |
Fast mining and large throughput. Some security measures are implemented as well. Generally, DOGE suits for being a payment method |
DOGE doesn’t have a max supply cap. Also, there is no dedicated team of developers meaning no tech support |
Some DOGE investors have raked millions and even billions of dollars |
During DOGE’s dip after Musk’s SNL appearance, these investors have lost almost half of their gains |
If you have an appetite for risk and desire to take a ride on the DOGE hype waves, we will be glad to see you at broker.cex.io 👇.
Disclaimer:
The ability to go long for DOGE/USD on the CEX.IO Broker platform is not a recommendation to open long positions. Only traders make the decisions about whether or not they should open long positions or refrain from trading at all. Only traders are fully responsible for the associated risks.