I don’t like writing mediocre posts about crypto, but this mediocre post was actually missing. If you wanted to know which cryptocurrency has a good chance to create another bubble in which you can invest and make a brazen profit before it’s too late, you should probably bet on the most irrational brand of crypto at this stage of the crypto evolution.
The problem of crypto up until now is that it does not really fulfil all the necessary conditions for being a true currency. Contrary to what many believe, crypto doesn’t technically fulfil the condition of being scarce (=limited supply).
Considering one particular cryptocurrency the scarcity of its number of coins is absolutely true, and nobody doubts that. But, as you can choose which cryptocurrency of all cryptocurrencies in the crypto-verse you want to pump your money into, your options are many, and theoretically even unlimited. This means that effectively the crypto market knows no bounds and crypto as a whole isn’t scarce at all. This is something that crypto-enthusiasts and shenanigans don’t like talking about and is, in fact, an open secret. The fact that current crypto does not fulfill the scarcity condition is simply ignored by big consulting companies, banks, and even some university professors.
All of the cryptos’ „scarcity“ is built on marketing, hype, and belief — or you might say equivalently built on sand.
The fiat money which people pump into the crypto verse diffuses into a plethora of cryptocurrencies. The only forces holding the crypto verse from not diffusing much further into many various crypto products are marketing, hype, and humans’ innate herd mentality of following others and joining the risky ride of ups and downs.
Some expansionary forces lead to the steady creation of new crypto products which take away market share from others, some contractionary forces lead to a certain degree of cohesion and a limited number of crypto products people are interested in. This is the whole story of how it actually works, and it is pretty dull. And yes, it’s a fun place for quant finance mathematicians, engineers, and nerds playing around with their data analysis and machine learning scripts trying to get a sneak peek of what is actually going on in the crazy crypto market. What a fun place for opportunists. What a fun place for young nerdy men. What a fun place for even the non-nerdy-twenty-year-old latecomers trying to get a piece of the cake too. What a fun place for risk-takers and all kinds of bored-out stay-at-home-ers.
The first cryptocurrency ever reaching fame and value was Bitcoin. Its value was extremely low for years until it started to get discovered by the masses. It got its value simply because it was the first one, the originator. It could have any other name than Bitcoin; it could have any other founder other than allegedly Satoshi Nakamoto. Its value is now based on nothing else than status quo, as some have invested in it by arguing „It’s the first, it will never fall much. It’s historic“. Note that this is the first irrationality we encounter: value due to historic reasons as there is no other reason.
Where is the difference between collecting Bitcoins and stamps in terms of the monetary value argument? The emergence of Bitcoin was followed by some early-bird opportunist cryptocurrencies that got famous and valuable just because they were crypto with often cringy, wannabe-sexy names (for example Ripple — sounds kind of fresh, hype, and young like raspberry ripple).
That worked until everybody understood how one can create one’s own crypto currency. Suddenly, everybody understood how ICOs (Initial Coin Offerings) work, and how to copy-paste the code to run their own blockchain on the internet. I know, it isn’t straightforward for everyone how to run their own server or copy-paste a chunk of code, let alone understand how blockchain works, so the entry threshold for starting an ICO was high for the average person (i.e. everybody not being an IT guy).
Nevertheless, more than enough of these opportunist-type coins emerged in little time, like it was the Cambrian species explosion. The mass birth of new cryptocurrencies was a phenomenon comparable to a meta-Ponzi scheme on top of the Ponzi scheme which each cryptocurrency already constitutes. Once that cheap trick of starting an ICO didn’t work anymore, the next stage of the crypto evolution started, where cryptos were supported by software developer “communities” that promised stuff like technical support, faster transactions, better access, and the feeling of a community that “cared”. What they cared for example was ensuring the currency’s logo is beautifully designed, downloadable in megapixel size and vector graphic, and was spread everywhere on internet platforms such as Twitter or Github. A little bit later that community was not only composed of software developers but also researchers who joined the crypto party. Adding some “science” promised the crypto investors, or more precisely crypto believers, not only improvements of a cryptocurrency but also its ongoing innovation; crypto was now supported by „science“ and academic institutions wanted to get their fair share of the joy — the many opportunities for publishing a paper in that hitherto unexplored field, and of course the money. You could read stuff like „We have twenty PhDs working on it“, „We are the fastest coin because we do this and others don’t“, or „We are the most environmentally stable coin“. Some tried to imply, at least by their naming if not by their internet-revolutionizing ideas, that „We are the final universal ultimate infinite coin; we are going to be this coin, there is no other coin.“ (for example PLC Ultima or Infinity coin).
No matter how many Ph.Ds work on one or another coin, it all comes down to marketing and herd mentality dynamic. Even if the Ph.Ds should make a truly innovative invention and that’s why you must buy that breakthrough cutting-edge technology future mega coin, do you think it’s really going to be the last and only mega future coin and no next new invention will ever overrun it? How can you be sure this coin will be a safe haven for your money if future crypto innovations may completely out game it? I hope the answer is clear to everyone reading: total bullsh*t.
Contrary to what many wanted to believe, a coin called Dogecoin became one of the most famous and largest coins in market capitalization among all cryptocurrencies. The fact that some killjoy crypto-sharks, heavy in existing crypto assets, called it a “sh*tcoin” for no reason, didn’t stop Dogecoin’s market capitalization from reaching for the stars.
Shitcoin, meme coin, altcoin, stablecoin, main coin — it’s in essence exactly the same.
Not only it had a catchy name with a catchy mascot dog and hit at the right time with a flair of boomer contrarianism but also was (and still is?) supported by one of the world’s most influential people, i.e., Elon Musk, who is, even though polarizing, a predominantly apolitical person. The irony goes deep with this coin’s success and that’s probably exactly why it might be so alluring for this man and community to hype that coin further on.
Dogecoin is the right coin at the right time. Dogecoin’s history is flawless as the inventor had no intentions of getting rich with it (“[…] who decided to create a payment system as a joke.”), at least according to Wikipedia. Investing in it is a bit of protest, fun, greed, and irrationality and other coins don’t offer that combo. You can choose between many coins each supported by an armada of Ph.Ds or this funny, inflationary, slow-transaction-time-executing, polarizing coin with an innocent-looking dog face. Woof!
Moreover, what definitely helped is that its price is psychologically advantageous with currently about 0.1$ per coin (let’s say it resides roughly in a range of 0.01$ — 1$). In addition to the aforementioned reasons comes to the fact that at the time Dogecoin hit the ground there was already tremendous market volume in Bitcoin and similar established coins, and a doubling of the price for each of those established “status-quo” cryptocurrencies would have required massive additional money influx. It was unlikely sufficient money influx would happen, and therefore, there was no adrenaline anymore in investing in established crypto brands with high market capitalization.
What do you think people do when facing such circumstances? They look for a new kick, a new trading high (some are heavily addicted) and they need to choose something that is in some way different than everything else. They need something special — „out-of-the-box“– and where they feel in their gut, everybody else feels the same way about it too. Dogecoin filled that gap.
When you are looking for snake oil and everybody is selling you the best snake oil, which snake oil do you buy?
Trying to find rationality in an ocean of irrationality is hopeless. All cryptocurrencies‘ monetary values are irrational, and as has been already demonstrated, one of the best bets is the maximum irrational one. Let me be clear, with “best” bet I do not mean that it’s anyhow a long-term investment that would make it a silver bullet to get a nice profit. By “best” bet I mean it has the potential to lead to extreme returns and consequentially equally extreme losses. This is, in fact, what we humans mean when talking about a good coin: a coin that promises a risky rollercoaster ride, and where everybody believes to make a better profit by pulling out at the right moment before all others.
The sudden and unexpected surge of share prices of a company called GameStop Corp was possibly a sign of frustration and reigning irrationality, not only in the crypto verse but in the overall financial system. The better-sophisticated machine learning trading algorithms will recognize past patterns and predict and tilt the investment game on their behalf, the more alluring it becomes for humans to behave non-deterministically by being irrational. Irrationality exhibits something that is characteristically human. It is hard to fake, steer, and predict.
The Shiba Inu (SHIB) coin, a cryptocurrency coin that allegedly is the more original version of Dogecoin due to its more proximal name“Shiba Inu”, which is the actual name of the Japanese dog breed of which Dogecoin’s mascot dog comes from, seemed to have tried to copy the effect Dogecoin enjoyed but never came close to Dogecoin’s image of both innocence and success. Copying irrationality doesn’t work. Faking it, even less so. And that’s what we like about it. When distrust and disinformation reign, the most irrational, the most perverted choice may become one of the best investments.
I bet on human irrationality. Do you?
As I do have a bunch of Dogecoins myself, please buy some Dogecoins so I can buy myself an ice cream or two from the profits. I appreciate it. Thank you.
Epilogue
I do not believe blockchain is a useless technology. But I believe its uses lie in other applications than gambling payment systems. What concerns crypto as a payment system is where it will head after the current stage of having entered total irrationality. Total depression, payment system hegemony, or a rather never-ending rollercoaster gambling ride with ebb and flow spiced with a flavor of irrationality that keeps it exciting?
