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In this article, we will try to explain why this situation has occurred. Although Dogecoin is a joke coin, it is not just on the surface. The amazing influence of Dogecoin fully illustrates how power is redefined in the digital age. The Dogecoin Era At first I was worried that I was writing this post because of the Dogecoin craze, but then I read an excellent article about the future of money and realized that there is no more important story about the reinvention of money than the Dogecoin price surge. Last Tuesday, the Dogecoin community attempted to raise the price of Dogecoin to $0.69 to commemorate American Marijuana Day on April 20. Although the price failed to reach the target, this was an extraordinary event as the stakes were huge. In this sense, Dogecoin’s wild ride encapsulates an important moment in human history. The traditional “story” of money in society is unravelling, new and confusing concepts like SPACs (special purpose acquisition companies) and NFTs (non-fungible tokens) are booming, and the market is full of fun, games, and blind buying by the mob. Dogecoin is part of this fierce battle for the new meaning of money, a testament to the 21st century power shift sparked by two different financial crises and the rise of social media networks. Let’s take a look: The story of money Let’s start with the idea that “money is a story.” I’m a fan of Yuval Harari’s bestselling book Sapiens, in which he argues that human civilization is built on our ability to organize around imagined concepts that are widely believed. There are concepts like the corporation, the nation-state and other things that allow us to form complex social systems. But he says money is the greatest success story of all time. There is no core intrinsic value in money, whether it is paper money, cryptocurrency or gold. The value of a currency depends on the consensus of its value. This is not to say that some types of currency do not have qualities that help their story resonate. It is mainly the size of the consensus base, which is why Bitcoin can be described as "sound money" and Dogecoin cannot. Without consensus, all currencies are worthless. For most of the past two thousand years, the dominant story has been that the value of money was derived from sovereignty, because the state, with the power to tax, had an overriding interest in optimizing society’s accounting function, which was the true purpose of money. In the later era of fiat money, it was the “good faith and credit” of the government (off the gold standard) that guaranteed that value. Later, the idea that politically independent central banks would maintain the value of money by managing the money supply in a way that served society’s best interests was reinforced. Now, as we enter a phase where state-backed currencies compete both with decentralized cryptocurrencies (like Bitcoin or Dogecoin) and corporate currencies (Facebook’s Diem) or Starbucks points, this narrowly defined story is breaking down, and the first catalyst appeared more than a decade ago. In the article about the future of money, the author recalled an interview with then-Fed Chairman Ben Bernanke on "60 Minutes" in 2009, at the height of the financial crisis. When asked whether the Fed's monetary injections into troubled banks were funded by taxpayers, Bernanke shook his head and said, "To lend to banks, we just use a computer to change the size of the bank's account at the Fed." He has always said that the Fed creates money by adding or removing bank reserves. But for a bewildered public struggling to cope with the financial turmoil, it was a revelatory challenge to the underlying story. It reveals that the creation of money is not governed by some sacred rule of scarcity and has little to do with the coins and notes that represent units of value in our collective imagination. It shows money as a digital accounting system that can be adjusted with the simple stroke of a keyboard. Fast forward to the new coronavirus crisis in March 2020. Amid a global economic downturn and desperation for the dollar, the Fed overdrives its “unlimited quantitative easing” policy, announcing that it will pump as many new dollars into bank balance sheets as necessary to stave off a financial collapse. It also expands the asset classes it will buy in exchange for the new dollars, including corporate bonds, exchange-traded funds, and other non-government instruments. It now appears the Fed will buy almost anything to prop up the market. Meanwhile, in this new era of “quantitative easing without limits,” the trillions in stimulus are so large that, as Bloomberg columnist Jared Dillian noted last spring, “money is losing its meaning.” This erosion of meaning leads people to question the value of money, which naturally leads them to buy other things. This is reflected in the surge in prices of assets that, to outsiders, seem disconnected from real-world value: Bitcoin, GME stock, NFTs, and Dogecoin. But before we get into talking about Dogecoin, let’s think about another contributing factor: social media. Leaderless online community Social media has challenged the central organizing structures of pre-internet society. While the internet has not generally solved wealth inequality, the power of anyone to publish anonymously has had a democratizing effect, giving communities the ability to organize around these new stories. This is meme culture. Social media enables crowdsourcing of stories around memes, which in turn gives rise to new forms of belief, a sense of purpose and camaraderie. With these, these communities can rise up against the existing order. This is what we saw with the GameStop phenomenon, where a 7 million-user Reddit community drove the stock price of their favorite gaming retailer up, causing huge losses to hedge funds that had tried to short the stock, arguing that its value didn’t match reality. The Dogecoin phenomenon is similar, but with one key difference: There are no levers from which regulators or powerful Wall Street money managers can exert pressure. That’s a big difference from the GameStop case, in which regulators and private equity funds essentially teamed up to prevent Robinhood, the trading app favored by WallStreetBets, from processing trades in the company’s stock, sending its share price tumbling. In the case of Dogecoin, not only is there no one responsible for managing this cryptocurrency, but Dogecoin can also be traded on dozens of exchanges, some of which are decentralized themselves. Who can regulators target behind Dogecoin? You know, Dogecoin is a joke coin, and its inventor not only withdrew from the project, but also from the industry. Like Bitcoin, there is no founder pre-mining or ICO, and there is no obvious known trading team. Market meets MEME At least for now, this structure allows the Dogecoin community to continue its collective creation of MEMEs and hot topics, fueling speculation on Dogecoin. Just as importantly, it creates unique opportunities for others to piggyback on this quirky, community-driven brand and its popular Shiba Inu logo: an image of fun, absurd irony, and shared interests, a brand that fits the internet age led by Gen Z and millennials. This in turn has given rise to a new symbiotic marketing model as brands look to capitalize on the high-value stickiness of the Dogecoin community. The defining moment came with the imaginative social media marketing campaign of American smoked meat stick brand Slim Jim, but Dogecoin’s mass base was laid in the early days of the community, when enthusiasts spontaneously participated in various marketing activities to increase the popularity of Dogecoin. In 2014, Dogecoin sponsored a Nascar racer. On a whim, Dogecoin later also funded the Jamaican bobsleigh team. Dogecoin will never be Bitcoin or its related aspirations: a store of value, a global reserve currency, and the future medium of exchange for a decentralized economy. But through this unique blend of an interesting brand, a strong community formation, and some strong market influence, we see how the 21st century digital media economy is reconceptualizing money. But this doesn’t mean you should invest in Dogecoin, it just illustrates the importance of the Dogecoin phenomenon. Chart: Market capitalization comparison of Dogecoin and well-known companies In today’s chart we take a look at Dogecoin’s crazy price action and compare it to some of Wall Street’s biggest names. Figure | Market value trend of Dogecoin vs. stocks of 6 companies (Source: Shuai Hao/CoinDesk) Just two weeks ago, Dogecoin had a market cap of $8.3 billion, just below Hyatt Hotels. Then, Dogecoin began to rise, surpassing not only Hyatt Hotels, but also quickly surpassing engineering giant Halliburton, banking group Credit Suisse, and insurance company Aflac. Then, last weekend, Dogecoin's market cap exceeded $45 billion, surpassing the 330-year-old British bank Barclays, and peaked at $53.98 billion on Monday, just above Swiss banking giant UBS. Since then, Dogecoin’s valuation has retreated, and was valued at just under $40 billion Thursday afternoon. That’s on par with asset management giant T. Rowe Price. For a joke coin, this is pretty good. Stansberry Research held a much-anticipated debate last week between MicroStrategy CEO Michael Saylor, a well-known Bitcoin advocate, and investor Frank Giustra, a gold advocate and Bitcoin skeptic. Using science fiction as the backdrop for the debate, Saylor began with a grand argument. He proposed that if gods came down and designed a perfect "God coin" system, Bitcoin would be the closest to having the same properties. He also described in detail how Bitcoin works and why he believes it is the highest level of "sound money." This high-brow, exaggerated image of Bitcoin seems to have irked Giustra, who said that the use of laser eyes and other inside jokes made Bitcoin "feel like a cult." In a subsequent tweet, gold market media Gold Telegraph chose to emphasize the point by superimposing an image of Saylor as the Pied Piper next to Giustra's video. Saylor has laser eyes and is the Pied Piper, leading a group of people to their doom. |
