We live in a strange time. I know you could say that about almost any point in history, but let’s face it. The past year has been more eventful than most. The past few months have been even more eventful if you’re an investor or follow economic news. We recently learned that a multi-billion dollar hedge fund is no match for a bunch of shit-posters on Reddit.
I’m not gonna lie. That story still puts a smile on my face. Last year sucked, but when a bunch of shit-posters on Reddit tank a predatory hedge fund, the world is an objectively better place.
As much fun as that is, there are some other stories related to investing that are worth noting. On top of the craziness caused by r/WallStreetBets, it has been just as chaotic for investors of cryptocurrencies. When the financial world is in chaos, cryptocurrencies that thumb their nose at old economic institutions tend to thrive.
Now, full disclosure, I do own Bitcoins. That’s the only cryptocurrency I own and I don’t own much. I’m not a bold investor. I buy index funds and ETFs. I would not fit in on r/WallStreetBets, nor would I be a good evangelist for Bitcoin.
For that same reason, I’d like to send a special note to those currently caught up in the Dogecoin craze. If you don’t know what Dogecoin is, then that’s understandable. It is a cryptocurrency like Bitcoin, but it’s unique in a few very particular ways.
Most notably, Dogecoin is often treated as a joke. That’s because it started off as one.
That’s not my opinion. That’s literally part of its origin. Its creators, Billy Markus and Jackson Palmer, were legitimately surprised when people started using it. I guess they didn’t get the joke.
That doesn’t mean Dogecoin has absolutely nothing going for it. It is a functioning cryptocurrency that uses some of the same technology as Bitcoin. Its most notable difference is that, unlike Bitcoin, there’s no limit to how many Dogecoins can be mined. Whereas Bitcoin can only ever have 21 million, Dogecoins can be mined indefinitely.
It may seem like a small difference, but that difference matters if you understand the basics of scarcity in economics. Most people understand it on some levels. If you can make an infinite amount of something, then it’s not going to have much value. If something is incredibly finite and difficult to obtain, like gold or Bitcoins, it’s going to have more value.
It’s that concept that I’d like to convey to those cheering on Dogecoin. Thanks to the recent upheavals from r/WallStreetBets, Dogecoin has been surging more than most currencies and even people like Elon Musk are cheering it on.
That’s not unusual. Sometimes, certain assets get propped up for a brief period. That has happened a lot with cryptocurrencies over the past decade. However, with Dogecoin, it’s a lot more style than substance.
Whereas Bitcoin gains value as it becomes more accepted in various sectors of the economy, Dogecoin gains value because people are just cheering it on. One has long-term sustainability. The other ends as soon as people get bored or find something else to cheer on.
Today, it’s Dogecoin.
Tomorrow, it could be JackCoin, a cryptocurrency made exclusively for people named Jack.
Is that the dumbest idea in the history of finance? I don’t know, but entire economies have gone bust for dumb things before.
Again, I’m not an investment expert. I’m not giving investment advice to anyone. However, to those thinking about getting in on the Dogecoin craze, I offer one important message.
You can win with style over substance in a lot of things, but not when it comes to money. At some point, a product has to demonstrate its value. You can only prop it up for so long before basic economic forces take over. It’s not fair and it’s not rational, but that’s how economics work.
Dogecoin will find that out at some point. Investors may have to find out the hard way.