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Dogecoin (DOGE) on a Tear
Dogecoin (DOGE) is on a tear, along with other cryptocurrencies. The last time we discussed DOGE was in late August 2021, specifically in the context of the proof-of-work (PoW) blockchain consensus and its complementary differences from Bitcoin (BTC). Most notably, the DOGE hash algorithm requires computation hardware with a significantly different architectural setup than that used for mining Bitcoin. Here’s a hint if you’re looking for the next trade: perhaps Nvidia’s stock success has (hopefully) educated investors about microprocessor design and manufacturing. Here are some past updates on silicon chips for background.
It only took three years, which is still faster than the 20 years it took for Nick Leeson’s long Nikkei bets to pay off.
Back in 2021, we compared DOGE to a less secure checking account used for small, frequent payments, while BTC was akin to a highly secure savings account or vault storage used for large transfers. As with financial accounts, it’s generally wise to keep smaller balances in checking accounts linked to payment cards for daily transactions. BTC naturally fills a role alongside faster protocol cryptocurrencies, and indeed, countless “lite-coins” and token-agnostic cryptographic solutions—like Flare, co-founded by Hugo Philon (a friend)—have come and gone in recent years. So, what makes DOGE special?
Proof-of-Stake & Smart Contracts
While proof-of-stake (PoS) blockchain protocols emerged to accelerate verification processes, we remained skeptical that PoS would surpass PoW and BTC in popularity, especially among crypto purists. PoS resembles the very tech and finance ecosystems that crypto diehards aim to disrupt.
For a time, there was significant enthusiasm around Ethereum’s (ETH) smart contract functionality. However, even the simplest codes are expensive, slow, and cumbersome to run on decentralized blockchain networks. Flare, as mentioned, enables smart contracts for a wide range of utility tokens, addressing some limitations.
While blockchain technologies are promising in theory, they are often impractical for modern computation needs, where processing vast amounts of data at high speeds is critical. The crypto landscape is hard to navigate, with countless technologies rising and falling, often disconnected from cryptocurrency price fluctuations or other utility tokens. That said, some trends are easier to identify as hype or fads than others.
Revenge of the Nerds
Decentralized blockchain protocols often appeal to geeky, libertarian, anti-establishment personalities. These individuals frequently view cryptocurrency traders as rent-seeking parasites. Yet, the money poured into cryptocurrencies partially funds their activities, so they tolerate it.
The quintessential crypto technologist tends to be highly intelligent but may struggle with traditional tests or exams, sometimes dealing with conditions like Asperger’s. Many have faced societal and professional rejections, leading to a distrust of institutions and a belief in cryptography over human reliability. This phenomenon has been aptly described as the “revenge of the nerds.”
Centralization vs. Decentralization
Blockchain developers are typically motivated more by ideology than financial incentives. Despite the wild fluctuations in personal wealth within the crypto community, their behaviors have remained consistent—unlike those speculating on cryptocurrencies.
The debate between centralization and decentralization mirrors the clash between institutionalism and anti-establishment ideologies. It need not be binary; the best solution often depends on the context. For example, an immutable decentralized database could have advantages over millions of privately managed ones on the internet. Still, whether blockchain technology is revolutionary is debatable.
Personally, I prefer a world where a central authority like ICANN can be trusted to reliably confirms we own NextFedChair.com. When Google once forgot to renew its google.com domain, the person who snapped it up immediate gave it back to the firm without needing to be threatened with legal action. It’s reassuring when trust can be placed in institutions rather than technology, even if people make mistakes. This boils down to public trust in authorities—or the lack thereof.
From a tech perspective, a relatively small group of highly talented and motivated individuals, working under strong guidance and leadership, continues to produce the best outcomes. Both Ancient Greek and Confucian philosophy emphasized the benefits of specialization and coordinated efforts. For example, OpenAI, with a staff of around 200, had completed training the GPT-3 model—producing tangible results in half the time it took since Satoshi Nakamoto published the Bitcoin whitepaper under a pseudonym.
Is DOGE Still a Buy?
As always, nothing here should be taken as investment advice. Price movements often spark interest, but they rarely provide the best conditions for objective assessments. But who has the time or patience to read through the hundreds or thousands of often poorly written blockchain protocols with tokens listed on exchanges to develop a bottom-up thesis on crypto? Most only investigate once a significant price move has occurred, only to discover that, more often than not, the price action is driven by Wild West behavior that would never be allowed on regulated exchanges.
In August 2021, when Jack Dorsey still had a stake in Twitter (X) and Elon Musk was just a superuser, DOGE had already retraced about two-thirds from its peak after their tweets about the cryptocurrency. Back then, we suggested buying a tiny amount of DOGE—e.g., $1,000 for a founder CIO of a billion-dollar hedge fund—but no more.
Why so little? A wise former boss once said: “Sometimes the position size doesn’t matter; the final P&L will be the same.” Large positions often tempt early profit-taking or loss-cutting, causing traders to miss out on the next 10x or 100x move. Conversely, small positions encourage passivity on the downside and activity on the upside.
The investors who make decent returns on crypto tend to have long-term objectives. Many overtrade and lose sight of larger moves, which are hard to time. Those who bought DOGE in 2021 experienced a wild ride, with the token covering three years of interest on the original investment at its peak—depending on the entry level. It was up to $0.44 earlier today, but no fund manager will admit to having capitulated on a $1,000 position a long while back.
The long and short of it is that we haven’t closely followed DOGE since 2021 to be worthy of a small punt on crypto. Here’s the broad outline of the thesis we presented at the time:
The Origins of Dogecoin & Master Plan
The idea is rumored to have surfaced after Musk’s Tesla acquisition of SolarCity in 2016. Those familiar with the renewable energy business know that major energy providers often bid 10 for excess electricity sold back to the grid while offering it at 100. Rightly or wrongly, middlemen are seen as monopolistic gatekeepers, hindering progress and innovation. There might be some truth to this perception, but there’s also a bit of the Dunning-Kruger effect at play—everyone assumes running a bank is a license to print money until they face delinquent loans and regulation.
Dorsey, Musk, and other tech libertarians figured it would be beneficial to create a cost-efficient, decentralized utility token that could act as a money substitute across platforms, cutting out intermediaries. In theory, a Twitter/X content creator could earn a crypto token—in this case, DOGE—which could then be used to pay for charging a Tesla with electricity from a solar panel.
Why Dogecoin? And Wasn’t It Supposed to Be a Joke?
DOGE’s creator famously stated that he intended to create the cryptocurrency as “a joke” by using an existing cryptographic algorithm in a blockchain and launching it within a few hours. Shortly afterward, he sold his entire DOGE holdings—a classic pump-and-dump scheme that would typically end once the originators cashed out. However, sometimes the best ideas emerge by fluke, and others recognize their value. In this case, the Dogecoin network continued to grow. In truth, DOGE is no more of a joke than BTC.
Dogecoin offers an alternative proof-of-work (PoW) blockchain consensus mechanism to Bitcoin. It’s lighter and faster but cryptographically less secure for each record on the ledger. While Bitcoin uses a standard SHA-256 hash, Dogecoin runs on the Scrypt algorithm. As a result, DOGE mining requires a different type of semiconductor than Bitcoin. The theoretical debate over whether deciphering many lighter encryptions in a blockchain requires fewer computational resources than deciphering fewer high-level encryptions depends on several factors, including hardware considerations.
Why Did the Crypto Community Embrace DOGE?
We cannot definitively say why the crypto community embraced DOGE over the many other cryptocurrencies launched at the time. However, since Dogecoin was created in 2013, the sheer length of its blockchain, due to legacy transactions, makes it significantly harder to hack than a newer consensus. In essence, it has been tested and certified by the market. At one point, there was talk of Musk leading a fork effort to split the blockchain into two separate protocols, allegedly to part ways with the so-called “woke” DOGE developers. However, this is information from years ago and doesn’t warrant constant monitoring for what remains a relatively small crypto bet.
Is the 2021 Master Plan Still on Course?
Since then, Dorsey is rumored to have sold his DOGE holdings, and Elon Musk has purchased Twitter (X), using a combination of personal funds and borrowed money. Content creators on X are not monetizing their work as originally envisioned, and the platform remains predominantly ad-funded.
Given these developments, we can only speculate on where tech moguls, dabbling in crypto alongside their myriad other initiatives, aim to take this. Whether they will succeed is an entirely different question—and the plan may well have evolved.
Time to Sell DOGE or Buy More Here?
For those who bought and still hold DOGE, the answers are “no” and “no”. We agreed to keep it small enough to forget and stay invested, but not large enough to invoking fear or greed. No “could haves, would haves, or should haves.” It was supposed to be the crypto wallet password which got lost, only to be found in time for the grandchildren nieces and nephews decades later.
If you believe in DOGE’s potential, it may be worth investing in the hardware manufacturers behind its mining and verification processes. At least these investments are regulated and offer legal recourse if things go awry—someone to sue for putting you into a trade that does a 90% round trip.
Know Thyself
“Know thyself” is highly relevant when it comes to volatile and risky investments like crypto. Additionally, major players in cryptocurrency markets tend to have far deeper pockets, more strategic planning, and greater patience than the average Wall Street titans chasing monthly returns. How smart or confident people feel about crypto often depends on their entry and exit levels. We can use this update as a rough guide for the knowledge required to make a $1,000 throwaway bet on DOGE. Not especially insightful for a cryptocurrency specialist. Add or remove as many zeros as is appropriate for you. A capital markets professional is unlikely to be the kind of person who intentionally captures a 1,000x price move on a significant sum of money.
Sorry, that’s the best we can offer… and yes, DOGE took its sweet time to make a comeback. Still, it’s nothing compared to the wild ride on the small amount of Songbird tokens kindly gifted by Hugo when Flare launched. At one point, he must have been worth squillions on paper. Sure, it felt like it was all going to crash by the end of 2021, but you don’t bail on a friend who was generous enough to invite you along for the ride. Besides, they can see exactly who held on or sold when the going got tough, thanks to the transparency of the blockchain. It’s almost like a test of resolve and character set by the nerds.
Ignore Traditional Finance on Crypto
Finally, most of the “research” and valuation “models” produced by traditional finance on crypto are utter horse manure. No really. They see no client flows, are only able to produce price charts available on any crypto exchange, and rely on outdated models that don’t even work for the markets they claim to specialize in forecasting.
