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Why Dogecoin Is Soaring Today

By Zhiyuan Sun – Aug 11, 2021 at 1:59PM

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The iconic Shiba Inu meme currency is making a comeback.

What happened

As of 10:30 a.m. EDT, Dogecoin (DOGE 5.72%) is up 11.37% in the past 24 hours to $0.278 per token. The coin is surging as part of a broad cryptocurrency rally that saw returning capital after nearly a quarter of consistent sell-offs.

So what

A combination of fear, uncertainty, and doubt (FUD) brought down the crypto market by nearly 51% from May to late July. These include Elon Musk rescinding acceptance of Bitcoin as payment for Tesla cars, concerns about the environmental sustainability of crypto mining, tougher regulations from the IRS, and China banning crypto investors from doing business with financial institutions. However, one thing has been flying under the radar the whole time-- the increasing widespread adoption of cryptocurrencies.

A Shiba Inu dog.

Image source: Getty Images.

Specific to Dogecoin, three years ago, only about 50 merchants accepted the currency as payment. But thanks to much shilling from Musk and his crypto fans, that number has soared to 1,485 as of August -- and growing.

Now what

Dogecoin has a somewhat limited supply, with 130.8 billion coins outstanding and 5 billion introduced into circulation every year. That means all that's needed for the price of the coin to go up is for the sum of capital inflows and merchant transactions to beat the 3.8% inflation rate. In addition, Dogecoin is far more environmentally friendly than Bitcoin. The network uses an auxiliary proof of work mechanism, where those who mine other currencies such as Litecoin can simultaneously mine Doge at no cost. What's more, the small inflationary nature of Doge keeps the mining difficulty -- and by proxy, electricity use -- low. For these reasons, it is a crypto asset investors can speculate on with a small amount of capital.

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.

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