As reported earlier today, the Dogecoin community was able to raise over $30,000 worth of dogecoins in an effort to get the Jamaican bobsled team to the Sochi Olympics. This is a feel good story for cryptocurrencies as a whole, but what does it mean for Dogecoin's position in the altcoin market? It's been reported that Dogecoin has more transaction volume than Bitcoin, and everyone understands that the community behind this coin is strong. So can a cryptocurrency based on a meme really go all the way "to the moon"?
Dogecoin's Value as Money
When looking at the value of a cryptocurrency, you have to put it's use as money above everything else. Unless it has use as a commodity, as is the case with Namecoin, it needs to function much better than Bitcoin in order to make any kind of serious progress. Although the doge meme has led to a higher market cap than first predicted, reality has to set in at some point. Markets can be wrong in the short term, but they eventually get it right. Bitcoins are much more useful than dogecoins as money due to the network effect. A high market cap for a cryptocurrency means a less volatile price. The value of all the dogecoins in the world is roughly 0.35% of the value of all the bitcoins in circulation. As mass adoption in the world of cryptocurrencies takes place, people are going to be looking for the stable store of value. Unfortunately, that won't include the dogecoin.
There are also Dogecoin proponents who will talk about the shorter confirmation time involved with transactions on the Dogecoin network. It's important to remember that Bitcoin transactions happen at the same pace as Dogecoin transactions. The difference is in the confirmation time, and a Dogecoin confirmation is not the same as a Bitcoin confirmation. While referencing Litecoin on Reddit, Erik Voorhees gave a great explanation as to why confirmation times aren't always what they seem.
Dogecoin Price Rise
As reported at The Bitcoin Channel, the Dogecoin is starting to "bark" on the news of the Jamaican bobsled team donations. The price could double, triple, or even quadruple over the next few days, but that higher price level can become shaky rather quickly. Once people start seeing quick returns on a cryptocurrency based on a meme, they aren't going to want to stick around to see how long it'll last. In Bitcoin, there's the idea of money moving from weak hands into strong hands after every market crash. With Dogecoin, it's unclear if there are any strong hands in the market at all. Is any serious investor going to stay in the market after the price begins to fall? I'd be happy if the Dogecoin community proved me wrong, but I don't think there is enough money behind the cryptocurrency to prop up the market cap at anything much higher than its current value.
Dogecoin is Still a Positive
Although I don't believe in the long term prospects of the dogecoin, I still think it's had a positive effect on the cryptocurrency market as a whole. Many people actually started to play with dogecoins before they even considered getting into bitcoins or any other cryptocurrency. The currency brought an entirely new group of people into the cryptocurrency world, but these individuals will likely move over to Bitcoin at some point for the reasons mentioned above. At the end of the day, Dogecoin can still go down as an experiment that brought more widespread attention to the cryptocurrency market.