Is Dogecoin a Case of Asset Euphoria?
The cryptocurrency Bitcoin has been experiencing another remarkable surge in price. In just the first few months of 2021, it climbed from $28,000 in January to around $48,000 by mid-February. But Bitcoin isn’t the only cryptocurrency catching headlines.
Surprisingly, Dogecoin (pronounced dohj-coin) is also on the rise. So, why is this unexpected? Dogecoin was originally created as a joke—a playful cryptocurrency based on an internet meme featuring a Shiba Inu dog and quirky, Comic Sans captions of its inner thoughts.
We've already seen the influence of internet-driven "meme stocks" earlier this year with GameStop, Nokia, and AMC—stocks that soared, not because of their business fundamentals, but due to hype and excitement on social media platforms. While Dogecoin isn’t a stock, it's riding a similar wave of social media-fueled enthusiasm.
Dogecoin: From Joke to Phenomenon
Dogecoin was created in just about three hours in 2013 by two software engineers—Billy Markus and Jackson Palmer—as a joke. Their idea? To make a cryptocurrency cheap enough that people could use it for fun, tipping each other for witty comments on forums like Reddit.
They purchased the domain dogecoin.com, featured a Shiba Inu as the mascot, and cheekily described it as an “open-source peer-to-peer digital currency, favored by Shiba Inus worldwide.”
For most of its life, Dogecoin was valued at about 1/5 of a penny—a quirky corner of the internet that seemed destined for obscurity. But as the past few years have proven, we should all expect the unexpected.
Dogecoin’s Sudden Rise
On January 28, 2021, a Twitter user known as WSBChairman suggested Dogecoin as an asset to watch. The very next day, the price soared, trading at 7 cents a coin. Then, Elon Musk tweeted about it—and Dogecoin hit 8 cents.
The rally didn’t stop there. Within months, Dogecoin became a cultural phenomenon, with fans claiming they would take it "to the moon." The community’s rallying cry was to push Dogecoin to $1.00. As of mid-April 2021, Dogecoin was trading around 30 cents, far beyond its original value.
Asset Euphoria: A Familiar Story
History is full of examples of markets dramatically rising and falling. Some market booms are supported by strong economic fundamentals, but others are driven by hype and speculation—commonly referred to as market bubbles.
We call this asset euphoria, where investors flock to a stock or market segment far beyond its actual value. Like blowing a bubble with gum, it grows until there’s nothing left to support it—then it pops.
Historical Examples of Euphoria
Tulip Mania (1630s, Holland): Tulip bulbs became a status symbol. Prices soared, and speculation ran wild. At its peak, some bulbs were worth several times the average Dutch annual salary. When the prices collapsed, many investors faced financial ruin.
The Dot-Com Bubble (Late 1990s - Early 2000s): The internet’s promise of global markets and new communication channels excited investors. Companies with no solid business plans saw their stock prices skyrocket. When reality hit, many of these companies folded, leading to widespread losses.
It’s easy to look back now and see the warning signs, but at the time, even experienced investors found it difficult to imagine the bust that was coming. While we can analyze trends and data, no one can predict the future with certainty.
How to Prepare for Booms and Busts
So, how can investors enjoy market booms while avoiding devastating busts? The key is to avoid giving in to euphoria. If something sounds too good to be true, it probably is.
The most effective way to protect yourself is through diversification. Spreading your investments across different asset classes reduces the risk of a single failure derailing your entire portfolio.
One of Dogecoin’s creators, Billy Markus, posted an open letter on Reddit in early 2021 urging the community to return to Dogecoin’s original spirit of fun. He closed with advice every investor should take to heart:
"Keep educating yourself as much as you can on how cryptocurrency works, how these markets work, never risk more than you can safely lose, be vigilant and aware."
Ready to Talk Strategy?
If you’re ready to review your portfolio or want guidance navigating today’s unpredictable markets, connect with the team at NEST Financial.
📧 Email us at info@nestfinancial.net to set up an introductory call.
We’re here to help make sure you’re prepared—no matter what the market throws your way.