The price of Dogecoin (DOGE), a meme coin created to spite its rival Shiba Inu Coin, jumped by 15% after Elon Musk tweeted that Tesla would begin accepting the coin as payment for its merchandise.
Tesla announced it was considering the move more than a month ago, and its decision to accept it raises a host of questions about whether DOGE has any inherent value or if its fundamentals are primarily driven by Musk’s opinions.
Dogecoin topped 20 cents per coin at 23:20 UTC on Thursday, according to trading data from CoinMarketCap. It was trading near 19 cents per coin on Friday as well.
Better than Bitcoin?
Even though DOGE was created as a joke, Musk has said previously that the coin is better for transactions than more popular assets like bitcoin because it "encourages people to spend, rather than sort of hoard as a store of value," according to an interview he gave to Time Magazine.
One reason Musk cited for his optimism in DOGE is that the asset's transaction fees are much lower than other assets. According to CoinMarketCap, DOGE's transaction fees are close to 65 cents per transaction whereas ethereum's fee is up over $46 because of its gas fee.
While DOGE holders seem bullish over the news, some analysts say the coin’s rise has more to do with gimmicks than anything truly fundamental.
According to DOGE’s white paper, the asset has no cap – meaning that developers are free to create as many coins as they can.
It can also make the asset susceptible to “pump-and-dump schemes” like penny stocks, where an investor drives up interest in an asset and sells-out at its peak before other investors realise what has happened.
Jeffrey Halley, a senior market analyst at Oanda Asia Pacific, a capital markets advisory firm in Singapore, previously wrote in an op-ed for Bloomberg that this setup means DOGE has “no apparent commercial or investment use other than as a conduit for speculative mania and the attempt to make a buck.”
Charles Morris, the chief investment officer at ByteTree, told Capital.com in an email that he sees DOGE’s “periodic jump” price jump as a reasonable response to its recent price dip.
Over the past seven months, DOGE’s price has fallen from nearly 70 cents per coin down to 19 cents.
Even so, miner revenue from the asset remains strong. According to data from CoinMetrics, DOGE developers are bringing in more than $2.1m (£1.54m) per day, making it very lucrative.
When asked if it is reasonable to use DOGE as a medium of exchange for good and services, Morris replied succinctly that the asset is more of a novelty or a gimmick.
DOGE is “not a serious driver of sales, I imagine,” Morris said.