Dogecoin, a thermometer of Musk’s mood: ‘It can have a disproportionate impact’

“Dogecoin is an unstoppable financial vehicle that’s going to take over the world,” Elon Musk affirmed. This was in May of 2021, during an airing of Saturday Night Live. He was pretending to be a financial expert.

“So, it’s a hustle?” asked comedian Michael Che.

“Yes, it’s a hustle,” replied the founder of Tesla, laughing.

Dogecoin is the queen of memecoins — digital assets without a technological basis to support them — which skyrocket in the heat of social media. The crypto-lovers closest to this currency clearly remember the statements made by the richest man in the world. If you look at the price of this cryptocurrency on CoinMarketCap, the page marks the date of that SNL episode as one of the most notable moments for the asset: after several days of expectation about what Musk would say (in the past, he had already declared it to be his favorite) the cyptocurrency lost more than a third of its value.

A few months later, Musk shook up the market again with a poll on Twitter: “Do you want Tesla to accept Doge?” He was hinting about the possibility that customers could buy their cars with this memecoin, something that still remains up in the air. In December of that same year, he stated that his company would accept payment for certain products in this digital currency. In a matter of minutes, the asset shot up by 33%. In short: when Musk speaks, Dogecoin responds.

But beyond just talking about it, Musk also owns some of this currency. His holdings, in fact, have been the subject of speculation on several occasions. Even today, it’s still unknown how much he has. Last January, in a conversation on X Spaces, he said that he owns “a lot of DOGE,” without detailing the amount.

This asset was created by two friends — Adobe engineer Jackson Palmer and software developer Billy Markus — back in 2013. It was born as a satirical alternative to the bitcoin fever, in order to make fun of an industry that had attracted too much money. To symbolize the joke (and the asset) they used the image of a Japanese dog breed — the Shiba Inu — which had become the quintessential internet meme three years earlier.

Despite having no relationship with the founders of the currency, Musk has ended up sponsoring it… and taking it to the White House. The founder of Tesla, alongside businessman Vivek Ramaswamy, will direct the newly-created Department of Government Efficiency. The acronym of this department — DOGE — is also how the currency is known in the crypto markets. Musk’s appointment to the incoming Republican administration has boosted the value of this token, which has risen by 130% since the U.S. presidential election, reaching almost $0.39 per unit.

After starting out as a joke, Dogecoin has become the seventh most important cryptocurrency, with a market value of about $56 billion. Jorge Soriano, CEO of the Criptán trading platform, believes that this asset owes a lot to the founder of Tesla. “If Elon Musk hadn’t talked so much about Dogecoin, I don’t think the currency would be where it is today,” he shrugs. The personalization of DOGE around Musk is evident. Experts warn of the risks it may entail for investors, especially in the long-term. “If the value of Dogecoin is excessively linked to the figure of Elon Musk, any change in his [level of] interest or reputation can disproportionately impact the asset. The greatest risk is volatility and lack of confidence in the long-term,” Soriano cautions.

Abel Peña, sales director of Bit2Me, agrees with this interpretation. “The personalization of DOGE around Musk is risky, because it centralizes the perception of a currency that should be decentralized. This makes it more dependent on [Musk’s] public image and increases [the cryptocurrency’s] volatility, complicating its adoption as a reliable asset,” he notes.

It’s true that the nature of Dogecoin is still a joke, to the point that it’s become the memecoin par excellence. That is, it’s a currency that uses the force of speculation and the coordinated behavior of the online community to challenge the traditional financial system.

Carlos Salinas, a professor of Blockchain and Digital Asset Investment at the Madrid-based IEB, explains to EL PAÍS that the crypto community is a very important component for this kind of asset. “Memecoins are outside the purely financial orbit. They’re more of a cult theme, an entertainment asset. The main driver that moves them is the community and the cultural theme.”

Dogecoin is based on a humorous and eccentric culture — a way for people to get together and have fun, while exploring the possibilities of cryptocurrencies. The Dogecoin Foundation — whose motto is “Do Only Good Every Day” — defines itself as “the accidental crypto movement that makes people smile” and describes this asset as a “currency of the people, for the people, and by the people.”

Despite the intentions of its followers, it should be noted that risk is the trademark of these assets. There are very pronounced rises and dips in their value, which make other digital currencies seem stable. The historical volatility of Dogecoin — during a period of 260 days — is double that of Bitcoin (87.22 versus 43.29 points), according to data from Bloomberg. If, in general, meme cryptocurrencies soar in the heat of social media as a result of user trends, the crypto community and general sentiment, for Dogecoin, what really counts is what Musk says and does. “Support of this type has a very strong speculative component. It’s very personal and there’s clearly a risk of manipulation in these investments,” Salinas warns.

However, he rules out that Musk is manipulating the market, since he doesn’t see the Tesla CEO obtaining a personal incentive from the rise and fall of this asset. “This could bring him unwanted attention. It’s negative to heat up the market… it wouldn’t be good for him personally. Rather, I think it’s a way for him to communicate with certain communities,” Salinas asserts.

In the past, the magnate already faced a lawsuit for allegedly influencing the price of the cryptocurrency. In 2022, some investors sued Musk, accusing him of manipulating the market through his Twitter posts and appearances on television shows, such as Saturday Night Live. These investors reported that they suffered losses due to Musk’s statements about this asset. However, the judge in charge of the case dismissed the lawsuit, arguing that it wasn’t possible to prove fraudulent activity on the part of the businessman based on his tweets.

While experts are hesitant to talk about price manipulation, Soriano believes that the Tesla CEO — who has called himself “Dogefather,” in reference to The Godfather — is heating up the market. “He always plays on the edge of legality. From my point of view, he’s not only drawing attention to DOGE, but to the entire digital asset industry.” He adds: “For me, the key thing is: why do people keep holding on to it (keeping a cryptocurrency for a long period of time without selling it)? Do they expect Musk to keep promoting it [and] increasing its price, before they sell? Or do they really agree with the cultural values behind this memecoin? Excessive dependence on a single figure is a sign of fragility in terms of the sustainability and maturity of the project,” he concludes.

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