I know there are a lot of critical issues facing this country, with an ongoing global pandemic and its after effects on the economy, a concerted push to restrict voting rights, particularly on people of color, and ongoing effects of climate change, but I had to step in and talk about the insane goings on the economic world, particularly cryptocurrency.
For those who are not aware, there has been a new form of financial instrument created a little over a decade ago called cryptocurrency, which is intended to be an alternative form of currency which is entirely digital in nature and also decentralized. In a way too short explanation of how it’s supposed to work, cryptocurrency is supposed to be used to buy goods and services anywhere around the world without a middleman institution such as a major banking institution or country’s central bank, and this transaction is meant to be registered on a digital ledger called a blockchain. This blockchain is supposed to work as a digital history of transactions which cannot be altered nor traced to any particular person or entity. The most famous of all cryptocurrency on the market is bitcoin, which was established in 2008 in the wake of the global financial crisis. A decade ago you could buy bitcoin for pennies on the dollar, but as I write this the price of one bitcoin is about $59,000. Then there is ethereum, which itself was created as a potential alternative to title companies, which would create a “smart” contract that would be more efficient than current paper chains of title. The currency is called ether for short, and as I write this it is trading for $3,675.00 a coin. There were other coins that were minted after those coins such as ripple, which was a cryptocurrency that would traded among big banks, and litecoin, which was intended to be the “silver” alternative to the “gold” bitcoin. But around 2017 there was an explosion of coins put onto the cryptocurrency market, most of which even cryptocurrency traders affectionately called “sh**coins” which were either complete scams or half-baked ideas that had no tangible use. One of those coins in particular was called dogecoin, which its creator specifically said was created as a joke in reference to the number of coins being minted at that time. The value of the cryptocurrency market skyrocketed in 2017, with bitcoin peaking at a value of just over $20,000 before crashing in January, 2018, with the value of bitcoin crashing at least 75% while other coins were left in the dust. But bitcoin would regain its previous peak just prior to the global pandemic, and it exploded in value during the pandemic upon the arrival of institutional banking investors suddenly expressing interest in digital currency.
Ethereum also exploded in value during the global pandemic, partly due to these same institutional investors, but mostly due to a new instrument called “non-fungible tokens”, or NFT’s for short. These were intended to register unique ownership of a digital product that could be traced to the original creator and not be able to be altered in any way until sold. NFT’s are generally built on the ethereum blockchain. There were stories of the very first tweet from the founder of Twitter being sold for millions of dollars, while other digital artists were selling avatars in games for tens of thousands of dollars at a time. I could try to explain this further, but it was rather better explained in a Saturday Night Live skit a few weeks ago, which by the way I will explain later why I am posting this diary.
Now I come back to dogecoin. Remember how I said this was created back in 2017 as a joke? Sure enough, it crashed in 2018 along with every other cryptocurrency, and even at the end of 2020 you could buy dogecoin for literally tenths of one penny per coin. But at the beginning of 2021 Elon Musk, the man who created PayPal and the mogul behind Tesla and SpaceX, put out a tweet while both bitcoin and ethereum were exploding saying “Doge!!!”, implying this was the next huge cryptocurrency. Almost overnight the value of dogecoin rose from tenths of one cent to 20 cents a coin. Reddit posters began hyping it up, and trading of the coin exploded on the Robinhood app. Soon, Mark Cuban of Dallas Mavericks and “Shark Tank” fame said it would rise faster than bitcoin in value, and sure enough dogecoin soon rose to 40 cents per coin. More strikingly, the market cap of this coin exceeded the value of companies like Moderna, Boeing, and American Family Insurance, who all have tangible products like airplanes, like-saving vaccines, and insurance. As I write this the value of dogecoin is 71 cents per coin and its market cap is over $93 billion.
So why am I writing this diary? Because Elon Musk is actually supposed to be a guest host on Saturday Night Live tonight. Why? I have no idea. SNL has reached outside of Hollywood or the music industry in the past for their guest hosts with mixed results, but mostly bad ones. Of course, the cryptocurrency market has anticipated this guest appearance with much excitement, and trading for dogecoin has risen 50% in just the past few days, with holders of this coin (or hodlers as they call themselves) hoping for some skits involving Musk hyping crypto to explode the value of their coins.
(Disclosure: I do not own any doegcoin. However, I did invest in one bitcoin back in 2015 when it was trading just under $300 and in one ethereum coin in 2017 when it was trading around $250. I have not invested in any cryptocurrency since then nor have I sold any cryptocurrency.)
So what does this cryprtomania mean to me? While I do believe there will be some tangible use of some cryptocurrecies in the future, whether as a means of exchange or store of value, in the short term it shows how there is too much money in the global market chasing a shrinking pile of assets that have little to no value. The institutional investors now piling in cryptocurrency have already driven up real estate values to the point where average people cannot afford to realistically buy a home, and they have already driven the stock market to insane valuations. As for the suckers currently investing in dogecoin, they’re most likely doing this out of desperation, as they cannot afford to participate in our current global economy and see this opportunity as a casino where they can hope to make some cash. Of course this type of casino gambling wouldn’t be necessary if those one percenters actually reinvested some of their wealth into their companies by improving their products and services instead of buying back their stocks or building more affordable housing instead of building “luxury” condo towers for AirBnb investors.