“Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights…. The population was now engaged in evading taxation and devoting their money to speculative purchases…. Shares in respectable concerns which had paid a 20% dividend, were pushed higher and higher till the final holders could not expect a return of even 1%.” – Adam Fergusson, When Money Dies
I am an avid consumer of written history. As a doom-oriented pattern recognizer, the written chronology of historically transformative events provides an endless source of almost-relevant analogies to fret over. For those of us in the gold/hard money/real asset/Austrian school of economics, the ultimate doom porn is Adam Fergusson’s seminal book on the hyperinflation experienced in Germany after World War I, When Money Dies. Unlike most of you, I’ve only read it three times.
When I read the retelling of history, I try to imagine what the people were thinking in the moment. Not what they would later claim they were thinking with the benefit of hindsight, but how they digested the daily news headlines in real time, internalized the risks and rewards of the present day, and behaved in ways that I can only assume were in their best interest as they understood it. Did they sense what was coming or did they think things would quickly regress back to normal? How did certain people separate signal from noise and protect themselves, while others drowned in the oncoming tsunami of destruction?
I also greatly respect the wisdom of crowds. When I see a bunch of people doing something I wouldn’t do, I try hard to resist the temptation to assume they know less than I do, and instead try to internalize what I might be missing.
Which brings us to Dogecoin.
What is Dogecoin you ask? I’m no expert in cryptocurrencies, but I know enough to be dangerous. Put simply, Dogecoin is a joke cryptocurrency that serves no purpose. It was created as such nearly a decade ago and left for dead soon thereafter. Here’s how Coinbase describes it:
“Dogecoin emerged in 2013 as a joke. It was created by Jackson Palmer and Billy Markus to satirize the growth of altcoins by making the doge internet meme into a cryptocurrency… There is no cap to the supply of coins and thus the coin can inflate infinitely.”
Here are a few other fun facts about Dogecoin. First, as noted above, the creators programmed in uncapped but fixed inflation, with potential new supply being created at an additional 5.256 billion coins per year. Second, you can’t buy and sell Dogecoin on Coinbase, presumably because it’s a little too dodgy (Doge-y?) for them. There are plenty of other crypto exchanges that will allow you to transact, including Binance and, as of this week, Gemini. The third, and I believe most interesting, fact is that Robinhood began allowing its millions of users to trade Dogecoin in 2020. For the first time, you didn’t need to leave the “traditional” financial system to speculate on this purposely worthless meme coin.
And speculate they have! Thanks to a cadre of high-profile pumpers (aka, future dumpers) led by Elon Musk, Tyler Winklevoss, Mark Cuban, and an ever-oppressive army of online bots, Dogecoin is the latest shiny new financial mania. At the time of this writing, a Dogecoin fetches about $0.66 each, which doesn’t seem like much until you consider there are about 130 billion of these things floating around the metaverse.
There isn’t much about Dogecoin on my Bloomberg terminal, but I did find this:
The Compass Crypto Reference Index Dogecoin represents the value of the DogeCoin at 4pm London Time according to the Compass Crypto Reference Indices methodology.
Close enough for Doomberg. Let’s look at the chart:
For practically all of 2020, you could have purchased as many Dogecoins as your heart desired for the low, low price of $0.0025 each. If you owned a crystal ball, a mere $10,000 invested would be worth more than $2.5 million this morning, a tidy profit of ~25,000%. And who knows where this is headed? If the market cap of nothing can approach $90B, what’s to stop it from approaching $1T?
While it’s fun to contemplate the fact that a joke coin is now valued like a newly minted member of the Fortune 100, I’m mostly interested in what this all means on a deeper level.
The doomer in me harkens back to the Adam Fergusson quote at the top of this essay. In the early days of Weimar hyperinflation, one of the ways people reacted in the moment was to speculate wildly in the stock market. While it seems laughable to think of a stock being absurdly priced because it “only” yields a dividend of 1% (Dogecoin: “Hold my beer!”), at that time it was unthinkable. Effectively, the crowd was saying “I’ll trade my Deutschmarks for ANYTHING, no matter the price.” In hindsight, the early and widespread speculation in the stock market was more signal than noise. The crowd was speaking.
Is the crowd speaking now? Does Dogecoin teach us about the collective confidence in modern fiat currencies? None other than Tyler Winklevoss himself, as CEO of Gemini, published a commentary on the explosive movements in Dogecoin this morning. Here’s a few key paragraphs:
“Dogecoin is the people’s money. It’s organic, irreverent, and fun. It’s not forced on us by a government or some other central authority, it’s chosen by us, for us — by the people, for the people. Wow.
For many, the idea of emergent money that is not mandated by fiat is hard to grok. We’re used to being told what money is. For most of our lives, paternalistic money is all we’ve ever known...until Bitcoin.
Dogecoin continues Bitcoin’s tradition of giving the control of money back to the people. Yes, it’s a meme coin, but all money is a meme. And all money is both an idea and a matter of faith or belief in it. Over the multi-millennia history of money, the majority of money (be it shells, beads, precious metals, etc.) has been what we the people say it is and believe it is.
Dogecoin is the perfect vehicle to lay bare this fundamental truth about money. And in serving this purpose, DOGE has a legitimate claim to some value. It reflects the true history and nature of money. It turns the idea of money being something that’s issued by an authority — a conceit — on its head. They say there’s some truth in every joke. Dogecoin’s value is its punchline.”
What role does Robinhood play in all this? An important one, I think. Robinhood is controversial because it employs heavy gamification and other toxic tricks weaponized by Silicon Valley to capture and keep your attention. Having played with the app myself, I can testify to how simple, fun and addictive it makes the otherwise serious job of investing feel. You aren’t really investing. You’re playing a fun game with a scorecard. A game you want to win, for sure, but most importantly for our narrative, a game you want to keep playing.
In the first Doomberg essay, Reflections from the Lake, I emphasized how the convergence of easy fiscal and monetary policy with supply chain disruptions was potentially made more dangerous by the toxic weaponization of social media by apps like Twitter, TikTok, Instagram and Facebook. I argued that viral videos and memes threatened to shorten the path from elevated to hyperinflation in a way our leaders almost certainly don’t understand. The Dogecoin phenomenon offers strong evidence for this hypothesis.
A group of highly influential social media titans accumulated a healthy helping of Dogecoins for themselves, then used their online power to amplify Doge memes and converted Dogecoin into the phenomenon we observe today. Egged on by the seductive powers of Robinhood, hordes of retail traders are piling in, happily risking US dollars for the latest speculative mania.
At a minimum, the signal I am hearing loud and clear is that if and when inflation memes replace Doge memes, and certain bad actors wish to accelerate the downfall of the US dollar, the infrastructure exists to take things to levels unthinkable by most people today…and quickly. Not even the sky is the limit. Not for this Doge.