GameStop and Dogecoin How Memes Can Move Markets
Determining the fundamental economic value of cryptocurrencies poses a significant challenge in finance today, a challenge that has only been compounded in the past week.
For many investors in cryptocurrencies, the value of Bitcoin hinges on its artificial scarcity. With a hard limit on the creation of new coins, only 21 million Bitcoins will ever exist. Moreover, unlike traditional national currencies such as the Australian dollar, the rate of new Bitcoin issuance diminishes over time.
On the other hand, Dogecoin, a cryptocurrency named after and featuring the likeness of a Shiba Inu meme that gained popularity several years ago, lacks such a cap. Since its launch in 2013, there are currently 100 billion Dogecoins in circulation, with potentially up to five billion new coins created annually.
A long-running joke brought to life
Dogecoin stands as one of the original “altcoins,” a term referring to cryptocurrencies that emerged in the years following the initial release of Bitcoin by the pseudonymous Satoshi Nakamoto.
Technically speaking, Dogecoin lacks substantial innovation. Like numerous early altcoins, it draws its foundation from Bitcoin’s original source code. More precisely, it is built upon Litecoin’s codebase, which itself derives from Bitcoin. However, Dogecoin incorporates minor adjustments such as enhanced transaction speeds and the removal of the supply cap. Yet, Dogecoin’s true intrigue lies in its cultural significance.
This cryptocurrency was conceived by software engineers Billy Markus and Jackson Palmer—although Palmer, an Australian, has since distanced himself from the project. They opted to associate it with the Doge meme, partly for humor and partly to disassociate it from Bitcoin’s then dubious reputation as a currency predominantly used for illicit transactions.
Today, Dogecoin has outlived nearly all of its early derivative altcoin counterparts and boasts a vibrant community of investors. Its supporters have demonstrated their enthusiasm through various initiatives, including sponsoring the Jamaican Bobsled Team in 2014 and subsequently funding a NASCAR driver.
Elon Musk, the wealthiest individual globally, counts himself among the high-profile advocates of this cryptocurrency. A single tweet from Musk in December of last year caused Dogecoin’s price to surge significantly.
Collectivism leads to creativity
Reddit discussions often tout Dogecoin as a potential new global currency, a sentiment echoed by Elon Musk himself in a recent conversation on the Clubhouse app. Musk remarked, “Dogecoin was created as a joke to satirize cryptocurrencies, but fate enjoys irony. The most ironic outcome would be that Dogecoin becomes the currency of Earth in the future.”
However, it’s essential to view Dogecoin primarily as a cultural phenomenon rather than a traditional financial asset. In reality, only a small fraction of cryptocurrency users hold it as a serious investment or utilize it for regular transactions. Instead, owning Dogecoin is more about participating in a cultural movement.
People are drawn to Dogecoin because it’s fun to possess, inherently amusing, and fosters a sense of camaraderie within its community.
Viewing Dogecoin through the lens of a cultural product helps explain the recent sharp increase in its price. This surge occurred shortly after a meme-focused community successfully drove the stock price of videogame retailer GameStop from $20 to $350 within days.
The unprecedented swarm behavior witnessed recently, notably orchestrated by the Reddit forum r/WallStreetBets, sent shockwaves through global financial markets.
One intriguing facet of the r/WallStreetBets community, which spearheaded the assault on the hedge fund that had bet on GameStop’s share price declining, was the sheer enjoyment many users derived from participating.
This jovial atmosphere is mirrored in the activity surrounding Dogecoin, which was conceived to be enjoyable from its inception.
Doge: icon of the internet
Some individuals engage in financial markets not solely for investment purposes, but as a form of consumption—seeking entertainment, leisure, and a sense of community.
Cultural assets like Dogecoin pose a challenge for systematic valuation, akin to the difficulty in pricing art without a fundamental theorem.
Demand for memecoins tends to mirror the volatility of internet culture itself, often leading to the transformation of cultural bubbles into financial bubbles. Ellie Rennie, a professor at RMIT and crypto-ethnographer, refers to these phenomena as “playful infrastructures.”
Examining Dogecoin closely provides valuable insights into the intricate interplay between technology, culture, and economics.
Furthermore, the landscape of cryptocurrencies is remarkably diverse. Some are tailored for microtransactions or serve as robust stores of value. Others prioritize financial privacy or function as internal tokens for managing smart contracts, supply chains, or energy grids.
At a technical level, Bitcoin and Dogecoin bear striking similarities, with differences confined to a few parameters in their code. However, their economic roles diverge significantly.
Bitcoin is often likened to “digital gold,” embraced as a secure hedge against political and economic instability. Conversely, Dogecoin serves primarily as a meme—a digital asset added to wallets simply because it’s amusing.
Nevertheless, in an open digital economy, memes wield considerable influence over market dynamics.
