What started as a complete joke seven years ago has turned into the best-performing asset of the year: Dogecoin (DOGE 0.65%) is up more than 13,000% year to date at Friday's prices. Had you seen the revolution coming at the very beginning of the year and invested $1,000, you would now have over $130,000. In the past month alone, the cryptocurrency has risen from slightly less than $0.06 per token to a recent high near $0.70. That's a gain of more than 1,000%.
Is there something to this surge? Is Dogecoin a good investment yet?
What is Dogecoin?
Dogecoin is a cryptocurrency that really was started as a joke by two software engineers at the end of 2013. It's often referred to as a meme cryptocurrency because it was actually inspired by a meme that was popular in 2010 of a Shiba Inu, a breed of Japanese hunting dog.
From a more technical perspective, Dogecoin is an "open source peer-to-peer digital currency," according to its website. Like most digital currencies, this means Dogecoin tokens can be sent instantaneously to anyone on the internet without a bank having to facilitate the transaction, because it's part of a decentralized network. People can also use Dogecoin to send cash gifts.
The reason why Dogecoin is often referred to as a joke even now is that there is nothing special or unique that sets it apart from Bitcoin, the first cryptocurrency, which pioneered blockchain as a technology and movement. Also, while the number of Bitcoin tokens will be capped at 21 million, Dogecoin has 129.5 billion tokens in circulation and counting, so there's no real supply-and-demand dynamic to its price.
Other tokens do offer differentiation from Bitcoin. For instance, Etherum has its own programming language, which allows coders to build applications with it that can run around the clock and without a third party. Ethereum is the technology being used to power most non-fungible tokens such as digital trading card moments and digital art.
So Dogecoin is not rising in price because of any technical differentiators behind it or the potential for uses that are unique from other cryptocurrencies. Dogecoin largely has the internet to thank for its meteoric rise.
Is Dogecoin a good investment?
In recent months, Tesla founder Elon Musk has been making jokes about the currency to his large social media following. In one post, Musk called himself the "Dogefather."One analyst thinks that Musk's upcoming debut on Saturday Night Live has also excited Dogecoin followers, with the thought that it could spark another run.
Billionaire investor Mark Cuban also appears to enjoy Dogecoin, saying it's "just fun" and adding that the "joke is now legit." The NBA team that Cuban owns, the Dallas Mavericks, also accepts Dogecoin for payment at its merchandise store. In fact, more than 1,300 merchants now accept Dogecoin for paymentThis kind of promotion from celebrities with large social media followings has given the cryptocurrency lots of publicity across social media as well as coverage by all of the big financial media outlets. Additionally, more and more exchanges are now selling Dogecoin.
Now, with all of that said, could Dogecoin ever be a legitimate investment? I don't know if it will ever warrant this kind of a run, or the $70 billion total market value it had when it recently neared $0.70 per token. But I wouldn't say it's impossible, either. Since Dogecoin's popularity took off, the asset's lead maintainer, Ross Nicoll, has said he will make changes to the technology to improve it, Coindesk recently reported.
Mike Bucella, a general partner at BlockTower Capital, recently told CNBC said that the path toward legitimacy is not impossible. "If there becomes enough of a community around an asset, and that community decides to effectively create long-term value through some form of declining supply cap over time, that could actually equate to a valuable currency," he said.
I actually invested in a little bit of Dogecoin before this big run, but it truthfully had nothing to do with investment quality. In fact, I knew very little about the token at the time. I simply thought it would be something fun to watch during the work day and get a laugh out of. There have been a lot of instances this year where stocks have exploded with very little behind them in the way of fundamentals -- GameStop and AMC certainly come to mind.
Given what we know about Dogecoin's technology and supply, I really don't see it as a good investment right now, and I am not sure it will ever really be able to offer any unique characteristics as a cryptocurrency. Could it eventually acquire enough of a following to make it more valuable? Perhaps. But more than likely this is a huge bubble building, so you will want to be extra careful if you are considering investing -- or, really, be prepared to lose everything you put in.