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Dissecting the Memenomics of Dogecoin

Another week, another wild, Elon Musk-tweet driven, Dogecoin gyration. The latest one has chart arrows pointing down.

But beyond what’s behind the most recent swing, let’s look at what’s driving the whole pendulum: hype.

Irrational speculative manias have been present as long as there have been markets; they’re a part of human nature. But at least one takeaway from the whole WallStreetBets/GameStop debacle is that maybe hype, pop culture, and whatever magic makes up internet sentiment, is starting to have a more powerful effect on assets than they had before.

It makes sense. Fintech apps like Robinhood have given a wider portion of the population the ability to buy and sell stocks. Crypto takes that to the extreme, making access global.

In short, memenomics are on the rise. Dogecoin is the perfect case study: an asset which has become completely divorced from more traditional fundamentals. 

The Rise of Dogecoin

At the beginning of 2021, out of every cryptocurrency, Dogecoin was ranked 38th in market cap at $726M. Now, in February, Dogecoin is ranked 13th with a market cap of almost $7B. Just days ago it was as high as 11th on the CoinMarketCap ranking. That’s an absolutely whopping growth rate of 10x within less than two months.

For context, within the same timeframe BTC’s market cap grew 52% from $546B to $830B and ETH grew 138% from $83B to $198B.

Dogecoin is, in essence, a joke asset. It bills itself as an “internet currency” and uses the famous Doge meme as its mascot. Unlike other popular crypto like BTC that have set caps for the maximum number of coins that will ever be available, DOGE has a theoretically infinite supply that increases at a steady rate each year.

But what Doge doesn’t have in scarcity, it makes up for with meme power.

Doge Fundamentals

Since Doge has been exploding through memes in 2021, we need to look at Doge’s activity in 2020 for a better understanding of its fundamentals. 

Prior to January, Doge consistently had 50-70k active users (measured by unique wallets active within a 24-hour period) per day. Roughly 25-40k Doge transactions took place per day, and the average transaction value was below $1k USD, according to BitInfoCharts.

This suggests a relatively small, but active user base who primarily uses Doge to make tiny transactions. (By the same metrics, BTC has around 800k-1M+ daily users making around 350k transactions per day at an average value of $160-200k+ USD. ETH has around 600-750k+ users making around 1.1M transactions per day at an average value of 3-5k USD.)

Interestingly enough, Doge’s daily active users and transaction count have stayed relatively consistent throughout 2020 and 2021, with the exception of temporary peaks corresponding to Twitter trends. These jump were especially big on Jan. 29 after #dogecoin took the top trending spot on Twitter the previous day, with the daily Doge user count peaking at 269k with 116k transactions at an average transaction value of 166k. 

While the active user numbers and transaction count have since dropped, average Doge transaction value spiked to a record 199k on Feb. 1 and has remained above 50k every day since. This might suggest that some long-time Doge users made a ton of money during the memetic peak and are continuing to push Doge as their crypto of choice.

The Memenomics of Dogecoin

“Memenomics,” as defined here, is the economy of meme-driven markets detached from fundamental value. 

“Memes defy the tyranny of reality, and for that, they hold immense power in shaping today’s world,” says Peter Pan, an investor at 1kx. “They can come from anyone and anywhere. Memes take power away from the establishment, which only understands what control is.”

Doge started 2021 valued around $0.005 USD, after hovering around $0.003 – $0.004 for most of Dec. 2020. 

Keep the following dates in mind, as they’re important.

On Jan. 2, Doge more than doubled to $0.01. Shortly thereafter, it fell down to the $0.007 to $0.008 range, where it stayed for most of January.

On Jan. 28, Doge massively spiked, hitting a (then) ATH price of $0.076. After that, Doge dropped to the $0.02 – $0.03 range.

Then, on Feb. 4, around 3:15 AM (EST), Doge spiked to $0.054 and rode an upward (albeit volatile) trajectory to a new ATH of $0.084 on Feb. 7.

Hype, Hype, Hype

Here’s where things get crazy: Every DOGE spike corresponds to a Doge-related hashtag trending on Twitter.

On both Jan. 2 and Jan. 28,  #dogecoin was the top trending hashtag on Twitter.

On Feb. 4, #dogearmy was the 5th highest trending hashtag. More importantly, though Elon Musk tweeted “Doge” at 2:35 AM (EST), which corresponds to the 3:15 AM spike.

Doge was not in the top 10 trending Twitter hashtags on any other date in 2021.

Google Trends

Google Trends, which measures interest over time for a given search term, tells a similar story. Note that the numbers represent search interest relative to the highest point on the chart, so a value of 100 is peak popularity for the term, while a value of 50 shows that the term was half as popular as it was at peak interest. 

Google Trends data is a bit broad, but you can clearly see that “Doge” had a small search spike in early January, followed by a huge spike (valued at 81) in late January. Then, there’s a dip at the beginning of February, followed by a new upwards trajectory with the current search term popularity value at 100 (or, a high for the given one year period).

Unsurprisingly, considering Doge trended alongside the Jan. 28 GameStop hype, you can see the massive jump in searches for “GameStop” during the same period.

To be sure, it’s possible that Doge prices started trending upwards before the Twitter trends hit on the aforementioned dates. At the same time, hype plays into hype. Regardless of whether the jumps started naturally or not, the data proves that meme trains kept the momentum going.

The Last Stop

But meme markets don’t always go up. 

On Feb. 14, Elon Musk tweeted: “If major Dogecoin holders sell most of their coins, it will get my full support. Too much concentration is the only real issue imo. I will literally pay actual $ if they just void their accounts.”

The public perception that Musk is telling people to drop Doge has led to a significant downturn in price over the past few days, with a major drop from $0.072 on the 12th to $0.049 by the end of the 14th.

Considering Musk has frequently advocated for Doge as the “people’s crypto,” he actually seems to be saying that whales losing their majority positions in Doge would be better for the longevity of the market. With more people holding more equal stakes in Doge, Doge really could become a powerful currency despite its theoretically limitless supply.

But there’s only so much nuance that can come across in a tweet about the king of meme coins.