Doge Analysis

Introduction

Back in February of this year I made a post about why I think Doge coin can reach $1 when it was stuck under 10 cents which you can read here. With Doge currently hovering around the 60 cent range, it now feels like the perfect time to do a fundamental analysis on the coin that has “no fundamentals”. In this analysis I will argue that doge does in fact have fundamentals but the coin itself has no utility. It’s long term value is completely derived from its network effect and whether or not its adoption continues to grow around the world as the “people’s crypto”. Let’s jump into it. 

A Brief History 

Doge coin was first created by an IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer, the two of them launched the coin on December 6th 2013. WIthin 30 days, Dogecoin.com had over 1 million visitors. From there, the rest is history. Not much has been changed from the original design of the coin, what has changed is the adoption which has predominantly stemmed from Elon Musk tweeting about Doge and other various celebrities joining in.

 

Inflationairy

Elon Musk tweeted in March that Bitcoin is deflationary to a fault, and there’s a lot of truth behind this statement. One of the main reasons Bitcoin struggles to be  world currency is because of its deflationary model (I go over this in detail in my Bitcoin analysis which can be found here). Because Bitcoin has a hard cap of 21 million coins, individuals are not incentivized to spend  their Bitcoin as it’s a rare asset that becomes more scarce over time. Doge coin’s inflationary model is similar to our current currencies where its annual inflation rate incentivizes it to be spent(although the high adoption it is currently experiencing disincentivizes this). In the long-run, mass adoption can make the Doge coin price more stable, thereby allowing it to be used as a currency more effectively. 

Doge being inflationairy isn’t as catastrophic as naysayers make it out to be. The inflation rate is 5 billion coins per year, so in 2015 this was a 5% inflation rate. Overtime, the percentage change of the inflation gets smaller as the total supply increases. The 5% inflation rate became 4% in 2019, will be 3% by 2027 and 2% by 2035. In this sense, Doge is actually better positioned than traditional currencies as its controlled inflation that is predictable and less impactful overtime. 

Fun to Use

One of the biggest problems plaguing the crypto space is that mass adoption is greatly hindered by people’s lack of understanding of the space. Trying to explain the economics behind Bitcoin alongside the technology that backs it, typically leaves people with their eyes glossing over and resorting to thinking that crypto is a scam. Crypto is hard for the majority of people to understand and therefore to believe in and adopt. Doge fixes this in a lot of ways as it’s a meme coin, an aspect of internet culture that we’re all extremely familiar with at this point. Setting up an account with Coinbase or another crypto exchange, transferring money into that account and then purchasing an asset that they don’t understand is an overwhelming experience for a lot of people, Doge is easy and fun to use and this goes a long way in this space. Similar to how whichever company can make defi easy to use and simple to understand will prosper the most, I believe cryptos that are easy to use and understand have the highest potential to be adopted and actually used as a currency.

Celebrity Backing

This is the main selling point of Doge and basically the only thing keeping the coin afloat. Elon Musk has been pumping the coin for months now and its his endorsement alongside celebrities like Mark Cuban, Snoop Dog, Meek Mill etc. that has helped pump Doge’s market cap to over $60 billion. In all honesty, I don’t foresee Elon ending this relationship with Doge anytime soon, and if celebrity endorsements continue to grow then doge has a real chance of surviving in the long term and becoming one of the future currencies we all use. Like what I discussed in my comprehensive guide for Bitcoin, money is a belief system that is chosen by society. If companies and merchants continue to accept Doge as payment and individuals continue to buy Doge and use it as payment then there is a real possibility Doge survives the next bear market.

Risks

Doge has a number of risks associated with it, one of the main ones being that the coin doesn’t have any intrinsic value as it has an unlimited supply with no real utility. Because of this, it’s ability to withhold itself as a long term investment will purely come from celebrities and influencers continuously promoting the coin and word of mouth spreading. I’m confident that these two factors will withhold in the short term and doge will easily surpass $1 this bull run, but long term gevity is completely up in the air. If Elon announces that doge will be the currency for his colony on Mars then Doge will be around for a long time. On the other hand, if he stops talking about Doge after SNL, well then we will see a steady and gradual fall from grace.

 

Whales

One of the biggest concerns with Doge is the large wallets that dominate the supply. The 11 largest Doge portfolios own close to 50% of the Doge supply, with one wallet even containing over 24 billion doge coins. This is extremely worrisome as these whales can dump at any time, completely crashing the price, which is what I expect will happen at the end of this bull run and people who bought in the second half of the year will lose a lot of money. Stay safe when investing in Doge and don’t have diamond hands in the later half of this year as Doge will crash to a much more severe degree compared to other coins. Hype is the only thing keeping this coin afloat. When the hype dies down, exit immediately. 

 

Lack of Development

Unlike other crypto projects, Doge doesn’t have a massive development team behind it with a  roadmap that looks to increase adoption and improve upon the coin’s technology. In actuality, the original creators stopped working on the project years ago and there aren’t any clear plans in place to improve or expand the project. Development is key in growing a crypto currency especially with the heightened competition, doge can easily be outclassed in the future if a new meme coin with better fundamental tech behind it becomes the new craze.

Conclusion

There seems to be two types of people, those who eat, sleep, breathe Doge and those that don’t. Regardless of whether you support it or hate it, Doge does in fact have value, its value is simply derived the same way traditional money is derived, through a belief system. I predict this belief system in Doge will collapse this year(or at the end of the bull market) but there is potential that Doge coin sticks around for the long run. Issues regarding its development, the whales and continued adoption need to be addressed but only time will tell if these issues are catastrophic to the project. My best recommendation is to approach Doge with extreme caution, take small profits all the way up as you never know when this crashes back down to the earth. It’s all fun and games until the hype is over.

5/10

Pros

High Network Effect Currently with strong community support

Inflationary means its more suitable as a currency

Elon Musk is a strong endorser( and other celebrities)

Cons

Minimal development

Supply is largely controlled by a few whales

No utility