Elon Musk is a big proponent of cryptocurrency and Dogecoin, in specific. The Tesla CEO has been very vocal about his belief in the cryptocurrency on Twitter but is investing in this meme coin a sustainable pursuit?
Elon Musk's Dogecoin Tweets
Over the last few weeks, the meme cryptocurrency that first started out as a joke in 2013 is now a serious contender in the crypto trading market. This is all thanks to Elon Musk and other famous personalities, like Snoop Dogg and Mark Cuban, who back the cryptocurrency.
When celebrities took to Twitter, talking about Dogecoin last February, the value of the coin spiked by 37 percent in just 24 hours, according to Entrepreneur. And in May, when Elon Musk and Tesla announced they will no longer be accepting Bitcoin for environmental sustainability concerns, Dogecoin rose once again.
Traders of Dogecoin are seeing great days as Musk continues to tweet about the meme currency. Musk has asked his followers on Twitter if they should accept Dogecoin as a mode of payment for Tesla, and 80 percent, more than 4 million users, voted yes.
Musk has also stated that he has been working with the Dogecoin developers, Adobe data scientist Jackson Palmer, IBM developer Billy Markus, and their team, to streamline and improve its transaction efficiency, calling the venture "potentially promising."
Working with Doge devs to improve system transaction efficiency. Potentially promising.— Elon Musk (@elonmusk) May 13, 2021
Another big proponent of the meme cryptocurrency is Mark Cuban, the owner of the NBA basketball team the Dallas mavericks. He lauds the crypotcurrency because "people actually use [it] for transactions." Back in March, the Dallas Mavericks started accepting Dogecoin for tickets and merchandise, accoring to CBS Detroit.
Entrpreneur says there are currently over 1,300 establishments and services that accept Dogecoin as a mode of payment.
And although Musk himself has stated that he does not participate in the buying or selling of Dogecoin, he continues to support the cryptocurrency and sees a lot of potential in the coin.
Is Dogecoin a Good Investment?
Trading Doge is a green pasture for a lot of retail traders as of recently. The consistent raise in prices allows a lot of traders to take significant gains from their purchases. And like a lot of currencies in the market, it does see price drops despite strong support.
Drops in prices can be due to exponentially high prices that traders then exploit to earn a handsome profit. As a significant amount of traders sell off their coins, the price of the cryptocurrency naturally drops as a reaction to the amount of cryptocurrency back, circulating in the market.
With that being said, the cryptocurrency market is not the most stable place to store your money.
Dogecoin has a unique feature that is seen as a problem by experts: it virtually has no cap. This means that there is, in theory, an infinite supply of Dogecoin. And as popularity for the meme cryptocurrency grows and as it attracts more buyers, over time, the "indiviual coin can lose value as the overall number of coins grow," CBS explains.
Many experts see the trend leading to a cryptocurrency bubble bursting, akin to how the real-estate bubble burst in 2008. CBS points out that cryptocurrencies lost nearly $1 billion in market capitlization earlier this month after China warned banks and businesses not to transact in digital currencies.
Unlike fiat money, the legal currency issued by governments, the usefulness of these cyrptocurrencies is limited. However, cryptocurrencies are trying to make themselves more accessible in everyday life. PayPal is allowing the use of cryptocurrencies in their system. Visa and Mastercard are also working on integrating the internet money.
David Kirsch, co-author of "Bubbles and Crashes: The Boom and Busy of Technological Innovation" tells CBS "It's hard to conclude definitevely this is a bubble." But the narratives and speculations around the cryptocurrency, coupled with the uncertainty and the inclusion of novice investors, are elements that "emerge as common predictors of a financial bubble," Kirsch says.