With Elon Musk set to host SNL, what’s behind the Dogecoin rally?

Dogecoin, the meme cryptocurrency known for its Shiba Inu dog face, has rocketed more than 13,000 percent between January 1 and its all-time high of 69 cents reached on Wednesday, according to CoinMarketCap.

That level of growth compares with a 95 percent increase for Bitcoin and 375 percent for Ethereum – the world’s two biggest cryptocurrencies.

If you had bought $1,000 worth of Dogecoin on January 1, your investment would have been worth about $141,897 when it hit its all-time high this week.

So what’s behind Dogecoin’s meteoric rise, how great a hand has Elon Musk played in the current frenzy, and what is dogecoin really worth?

First off, what is Dogecoin?

Dogecoin is a cryptocurrency created by software engineers in 2013 who sought to build a payment system that would be fast, friendly and fun.

It goes by the ticker DOGE and the symbol “Д and its name derives from the Japanese “doge” meme. Billy Markus and Jackson Palmer, the co-founders, have since distanced themselves from the silly project due to what they called a “toxic” shift in the crypto world.

What’s behind the recent rally?

Amid a surge in cryptocurrencies more broadly, Dogecoin now has a market capitalisation of more than $78bn, according to CoinMarketCap.

Crypto enthusiasts have piled into the asset through promotion across social media groups on Reddit, TikTok and Facebook. As Dogecoin has gained steam, retail traders and mainstream investors have begun to partake – the frenzy even briefly crashed the Robinhood trading app this week.

Many also saw the digital token as something of a bargain earlier in 2021 and bought it when it was relatively cheap.

Dogecoin is only available on certain cryptocurrency trading platforms such as Webull, Robinhood Crypto, eToro and Gemini [File: Yuriko Nakao/Getty Images]

How is this cryptocurrency different from Bitcoin?

The most important difference boils down to supply. There is a limit on how many Bitcoins can be created. New ones are released into the wild as miners race to verify transactions for the reward of new Bitcoins. But once that supply runs out, no more new Bitcoins.

That keeps inflation – which erodes the value of an asset – in check.

Dogecoin, by contrast, has no supply cap. The amount that can be created is infinite. And new ones are being minted at a rate of 14.4 million new Dogecoin every day, according to an analysis by CoinDesk.

Why is Elon Musk involved in this one?

Musk imparted his Midas touch on Dogecoin when he first started tweeting about it back in February.

As he prepares to host Saturday Night Live this weekend, the CEO of Tesla and SpaceX – and self-proclaimed “Dogefather” – was expected to name drop the coin on the popular comedy sketch show, and feed the frenzy even more.

On Friday though, Musk (not for the first time BTW) appeared to inject some sobering risk assessment into the frothy market, tweeting to his 53.1 million followers: Cryptocurrency is promising, but please invest with caution!

Musk routinely vies for the crown of world’s wealthiest person, so he has a lot more money to play with, and potentially lose, than the average retail investor.

Are there any other celebrities feeding Dogecoin hype?

Billionaire Mark Cuban has said Dogecoin is “better than a lottery ticket”. Rapper Snoop Dogg and rockstar Gene Simmons have also fed the hype.

Where can I buy it?

Dogecoin is only available on certain cryptocurrency trading platforms such as Webull, Robinhood Crypto, eToro and Gemini.

Coinbase, which went public last month, does not yet support it. Several governments have taken regulatory action to limit Bitcoin trading, but as of now, Dogecoin, which lacks a real monetary “purpose”, is not in their crosshairs.

How risky an investment is it?

Dogecoin “millionaires” have been celebrating for weeks that their cherished possession has swelled their savings.

But all cryptocurrencies are highly volatile and deeply prone to boom and bust cycles.

Kiss frontman Gene Simmons is among the celebrities who have hyped Dogecoin recently [File: Amy Harris/Invision/AP]

Could this all end in tears?

Long-term investing is not a popularity contest. Many analysts have warned that Dogecoin, and the frenzied crypto sector as a whole, have the potential to become a massive bubble.

Given the instability of such assets, people should be prepared to lose their shirts. Especially for an asset like Dogecoin where the value pivots on fickle demand and plenty of FOMO.

What do critics say?

Dogecoin naysayers argue that properly timing the market is difficult to pull off and that the current rally will ultimately tumble downwards as speculative buzz subsides.

Whether the token is a legitimate store of value or just a collectable novelty item is a matter of opinion. But many haters believe that crypto purchases, especially Dogecoin, are no better than gambling at a casino. They also suggest that cybersecurity vulnerabilities are a big problem.