What on Earth is Happening with Cryptocurrency?

• Author: Mary Singleton
• Posted: 2024-10-26

Cryptocurrency has been one of the more wild and riskier investments that the average person has been able to make over the past few years. What started as a dream method of creating an alternative, decentralized currency has evolved into a sprawling rollercoaster of an investment vehicle, creating volatile alternative investments that have proven to be very lucrative for some - while also being exceptionally damaging for others. The latest news has also shone a new light on the industry and some of its stranger corners.

Much More Than Bitcoin

Most people are now familiar with Bitcoin, the first of the wildly popular forms of electronic currency. At the moment, one Bitcoin sells for north of $37,000, but wild fluctuations in the market cause it to gain or lose thousands overnight.

However, cryptocurrency is much more than Bitcoin - indeed, there are more than 4,600 different types of cryptocurrencies on the market, and that number seems to be increasing all the time. This is largely thanks to the relatively low barriers of entry, the virtually non-existent regulatory environment, and the decentralized system that makes it easy for others to participate. 

Other popular forms of cryptocurrency include Litecoin, Ethereum, Cardano, and more. The cryptocurrency industry is a massive one, with a total market capitalization of north of $800 billion. Bitcoin is roughly 68% of that total fund.

Dogecoin and Elon Musk

Perhaps no type of currency epitomizes the cryptocurrency market as perfectly as Dogecoin. Dogecoin can trace its origins to a literal internet meme. Its picture and name are a reference to a dog that was seen everywhere on the internet in the mid-2010s. Its founders have repeatedly said he created dogecoin as a complete joke, and at least one of them has expressed real concern over its rise in value.

The origins of Dogecoin might have been an attempt at humor, but at this point, no one is laughing. The cryptocurrency has seen a major rise in its price, jumping to a high of $.044. That may not seem like much, but remember, it literally started at nothing.

The issue with the rise of Dogecoin is that there is literally nothing behind it. In fact, its most recent rise is attributable to the same factors that have resulted in the infamous GameStop short-squeeze. At around the same time that investors were costing hedge funds that had shorted GameStop billions, they also began to pour money into Dogecoin, and slowly, its price began to rise - for absolutely no reason other than Redditors thoughts it was funny.

Then Elon Musk got into the act. He tweeted supportively about Dogecoin in December 2020, and then again in early February 2021, tweeted a meme of the coin. It was the most recent tweet that caused the price of Dogecoin to actually double. 

So, What's Next?

The entire episode has been fascinating - but it's also helped to show the danger of memed stocks and investment vehicles that create artificial value to stocks and other currencies. Yes, Dogecoin is on the rise, but so was GameStop. As of this writing, GameStop is has come crashing down to earth in a big way, with prices dropping from a high of roughly $350 a share to $53. This decline has cost some retail investors huge sums of money.

The crash makes sense. The rise was based on nothing but collective behavior, not actual value, and bubbles can only last for so long. This begs the question: Will the same happen with dogecoin? If so, when? The answer to the first question is likely yes, but the second question remains to be seen.

Cryptocurrency faces other threats as well. As more light is shed on the industry, more government actors are calling for increased regulation in the arena. Giving additional power to these calls are recent revelations that cryptocurrency is being used as payment by terrorist networks, with some reports noting that it has become the currency of choice by many terrorists. This makes sense: The decentralized and largely untraceable nature of the currency makes it preferable by many terrorist groups.

As you can see, the cryptocurrency arena is at a critical moment. Calls for increased consumer protections are growing, and with Democrats now in control of Congress and the Presidency, it does seem possible that some of these calls will turn into real action. Time will tell what comes next for cryptocurrency, but it does seem clear that the industry is in unchartered territory.