Hosting Saturday Night Live in May, Elon Musk let slip a seemingly offhand remark about Dogecoin in his opening monologue. Following a few lines of effusive praise for the cryptocurrency, he called it a “hustle,” causing an immediate plunge in the value of Dogecoin by nearly 30%. And while the decline had leveled off to just 17% by the time that night’s show was over, the effect of Musk’s deliberately comic performance raised questions about the stability of Dogecoin specifically, and digital currencies in general.
Dogecoin actually began life as a joke, a bit of performance art in 2013 by two software engineers who wanted to satirize the wildly speculative nature of Bitcoin and other cryptocurrencies. But the joke quickly became serious as Dogecoin took on actual value, reaching a market capitalization of more than $85 billion just days before Musk’s SNL stunt. Today that number stands at around $54 billion, greater than that of Dollar General, Walgreens Boots Alliance or Kimberly-Clark, to name but a few giant corporations with actual assets. Whether Dogecoin can maintain that level of performance is anyone’s guess. Indeed, the full story of cryptocurrencies, concluding whether they possess any ultimate long-term value at all, has yet to be written.
Structurally, Dogecoin isn’t much difference from other digital currencies, according to Athan Slotkin, an entrepreneur and business strategist who has christened himself “The Shadow CEO.” “All of these currencies without functional utilities are based on a group belief,” he says. “They’re valuable because people say they’re valuable.”
The same can be said, of course, for any traditional currency, even though the latter are backed by the credit of governments that issue them. No government invented Bitcoin, the first modern cryptocurrency. In fact, the very idea of the mysterious individual known as Satoshi Nakamoto was to create a currency that bypassed governments and banks and could be traded on a peer-to-peer basis. All that’s required is that the peers in question agree that the instrument in question is worth something. (Just to confuse matters further, China has created a digital version of the state-supported yuan, with other countries sure to follow, but that’s a story for another day.)
Even the short-term rationale for Dogecoin and other cryptocurrencies is cloudy. In theory, they serve the same purpose as that of any regular currency: a means for purchasing goods and services. But their value seesaws so wildly that they’re more accurately viewed today as investment vehicles, albeit of a highly speculative nature. (In 2010, early adopter Laszlo Hanyecz famously paid for a couple of pizzas with 10,000 Bitcoins, valued at around $41 at the time. Today they’re worth approximately $320 million.)
Slotkin likens Dogecoin and other cryptocurrencies to tradeable commodities, such as gold, with a degree of volatility. He expects the swings in value eventually to even out, although “I’m not sure it ever only gets used for paying. At some point, it will stabilize, and as it does, fewer people will be coming into it as a speculative play. But people like the volatility — the stores of becoming rich overnight.”
Currently there are said to be more than 4,000 cryptocurrencies in existence. Slotkin believes a shakeout is inevitable. “Right now, we’re at the point where it’s extremely easy for anyone to create a currency in five minutes.” That had led to a large number of fake issuances, often advertised over social media, causing damage to the credibility of this fledgling instrument.
The flood of initial coin offerings (ICOs) by startups seeking capital, many of which were introduced with substantial hype but quickly blew up, has further raised questions about the viability of the concept. The U.S. Securities and Exchange Commission has taken action against a number of coin issues, on the grounds that they should be subject to the same regulations that govern traditional securities.
Slotkin nevertheless believes that a preponderance of crypto issues is well-intentioned and potentially beneficial, whether or not they will ultimately survive. “There are several thousand projects trying to revolutionize technology and the way business is conducted,” he says. “A large percentage of those will fail, but that’s no different than a traditional startup.”
A handful of cryptocurrencies, such as Bitcoin and Ether (the native coin of the Ethereum blockchain platform), are steadily gaining the trust of investors, and appear to be in little danger of disappearing anytime soon. For now, however, the larger crypto landscape resembles a modern-day version of the Wild West, some years away from achieving true civilization. As for Dogecoin, time will tell whether or not a venture that started out as a joke will end up as one.