18th May 2021
Why is Dogecoin Receiving Attention
Global Coin Research has studied the reasons behind the recent rally of Dogecoin.
In April, Dogecoin saw a sudden spike, but there was neither the usual barrage of tweets from Elon Musk nor the much chatter on Reddit as in February. Are existing Dogecoin whales pumping the coin?
One of the biggest critiques of Dogecoin is that its supply is unlimited. Based on the current annual increase in supply of 5B and the total 129B tokens, the inflation rate is 4% per year, which seems acceptable.
So while Dogecoin won’t be a store of value, it could potentially be a medium of exchange. Because as long as the user base is large enough, people will flock to it.
Who holds Dogecoin? The top holder holds 28.4% of the supply, while the top 20 hold more than 50% of the supply.
Does the new demand come from the existing top holders or new holders?
Through the observation of the large transactions (>10 million $DOGE) from the 36 hours between April 15th-16th, it is found that the current top holders barely participated in this rally, so they are more likely to be new holders.
This was also confirmed by the fact that the top 100 holder weight over the total supply was left relatively unchanged by this rally. And top 10 buyers in this recent rally only account for 16% of purchases.
Some have attributed this rise in price to the Coinbase listing, while others have attributed it to the single tweet of Elon Musk. But there is no way to explain the sudden rise of Dogecoin after the listing. For example, the barrage of his tweets in February 21 failed to cause such an effect.
So the only two hypotheses that may hold meaningful value are:
- A market-wide unwinding of short positions against historically “low quality coins” such as $XRP and $DOGE.
- The possibility that there may be some organic demand developing for Dogecoin.
If it is the latter, this could have a lot of significance for the future of Dogecoin. Although its supply is unlimited and the fundamentals are just all right, its network value will increase as more people use it. As Elon Musk said, the most entertaining outcome may not be as unrealistic as we once thought.
No matter the eventual outcome, one thing is for sure: Dogecoin is no longer a laughing matter.
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