What are memecoins?

By now, everyone has become familiar with meme-assets. Memestocks like GameStop. Memecoins like Dogecoin. There are certainly a lot of similarities between them in terms of how the stories spread and how the prices move.



Facts about Dogecoins:


· DOGE, which was started as a joke in 2013, is now the 10th most valuable cryptocurrency by market value, just behind Bitcoin Cash and ahead of BNB.

· The price of DOGE rose to an all-time high of $0.082 per Messari, before settling down to $0.073, up 822% over the last 24 hours and bringing the year-to-date gains to about the same amount. Over $12 million worth of DOGE traded in the past 24 hours.

· Why the token has soared is unclear but it's likely largely caused by attention from public Reddit trading collective Wall Street Bets along with a TikTok post about the "dogecoin army" by niche celebrity Carole Baskin from Netflix's "Tiger King."


Memstocks vs Memecoins


By now, everyone has become familiar with meme-assets. Memestocks like GameStop. Memecoins like Dogecoin. There are certainly a lot of similarities between them in terms of how the stories spread and how the prices move.


A meme stock is a stock that has seen an increase in volume not because of the company's performance, but rather because of hype on social media and online forums like Reddit.


Memecoins are mostly associated with Dogecoin, the first cryptocurency that used a meme to get some awareness. A memecoin is a joke that turns into a crypto coin, most of the time with a high market capitalization.


Rising prices have other benefits as well. You theoretically could do a $1 million Dogecoin transaction right now with almost no impact on the price. According to Coinmarketcap, nearly $20 billion in Doge has been traded in just the last 24 hours. So in addition to expanding the universe of people who theoretically might accept it for a transaction, the rising price makes it more transactable without having an impact on price.


And there’s more than that. Dogecoin is a “proof-of-work” coin, meaning it gets mined with roughly the same model as Bitcoin. The miners secure the network. But would-be miners are only going to dedicate resources (equipment and electricity) to a coin with meaningful value. So a higher price can also theoretically incent more players to start mining the coin, which also makes it more secure.


So unlike with a memestock, you can reasonably say that a rising price does potentially increase the true underlying value of the asset, by making it more accepted, more liquid, and more secure. The same doesn’t really apply for a memestock.


Of course it goes in reverse as well. A decline in the price of a memecoin decreases the fundamental underlying value in a way that’s not really the case with companies and equity.


Dogecoin vs. Bitcoins



Despite their technical similarities, these two projects entered the market with two very different purposes. Bitcoin was created to provide the world with a viable alternative to the current financial system. The coin’s coding and whitepaper are filled with indicators of this purpose.


Comparingly, Dogecoin didn’t enter the market with such grand ideals in mind. Markus has stated that initially the coin was created as a joke. Like Bitcoin, his intentions are woven within the coin’s features. For example, the name Dogecoin and its now-famous Shiba Inu logo was a reference to a popular meme at the time. The coin didn’t originate with some divine purpose in mind, but rather, to make people smile and get a good laugh out of the select people they thought would ever see the project.


The differences between bitcoins and dogecoins


Bitcoin and Dogecoin have a few key differences. And those differences have big implications for their long-term prospects.


First, Dogecoin is currently infinite. That means miners can continue to solve blocks and earn new Dogecoin forever. By comparison, Bitcoin is limited to 21 million tokens, 18.7 million of which already exist. That's because every 210,000 blocks, the Bitcoin earned for solving a block is cut in half. In other words, at some point in the future, the reward will effectively be zero. And after that time, Bitcoin miners will only earn transaction fees.


Similar to gold and other precious metals, this scarcity should make Bitcoin more valuable than Dogecoin. But Bitcoin also has another advantage. It is the most widely adopted and most valuable cryptocurrency. That may sound trivial, but it actually matters a great deal.


As of January, there were over 4,000 different cryptocurrencies in existence. And whether you believe any of them are smart investments or not, it's hard to deny the fact that 4,000 different currencies creates a lot of complexity. In other words, I believe the majority of value will be consolidated into just a few of these tokens over time. And Bitcoin's massive lead virtually ensures that it will come out ahead of Dogecoin.


What may be of interest to larger holders, however, is that dogecoin does not move in tandem with bitcoin. At least not anymore. According to CoinDesk Research, dogecoin’s correlation with bitcoin has fallen to near zero, which means the two cryptocurrencies are both marching to the beat of their own drums, at least since October 2020 when the two were closely correlated.


“At this point the financial future of doge could very much be dictated by Elon [Musk, the Tesla CEO] and others who unilaterally decide to adopt it as their currency of choice,” said John Willock, chief executive officer of crypto custody provider Tritum. “That decision is likely not to be based on merit of the traditional sort but, rather, just because they like it.”


Useful Links for correlations

https://bitinfocharts.com/correlation.html

https://charts.coinmetrics.io/correlations/

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