Why Dogecoin is skyrocketing today

What happened

Dogecoin (CRYPT: DOGE) made big gains in today’s trading. The popular meme-themed cryptocurrency was up about 7.2% over the previous 24-hour period at 12:15 a.m. ET Sunday.

You’re here CEO Elon Musk bought a 9.2% stake in Twitter recently, making him the social media company’s largest shareholder and leading him to join the company’s board of directors soon after. Yesterday, Musk made comments indicating that he believes users should be able to pay for premium subscription service Twitter Blue with Dogecoin, and his comments led to big gains in the price of the token.

Image source: Getty Images.

So what

Dogecoin has been making gains lately despite bearish pressures impacting the broader crypto space. It is one of the very few top 100 tokens to be in the green over the past week, and investors in the popular meme token can once again thank Tesla’s Elon Musk for the price gains.

Musk has been one of the most prominent cryptocurrency champions, and the influential tech personality said it was one of only three cryptocurrencies he owned – along with Bitcoin and Ethereum.

Now what

Apart from pure speculation and market dynamics, increased user adoption and payment use cases are one of the major factors that could help drive up the price of Dogecoin. However, there are still reasons to be skeptical about whether Dogecoin and other cryptocurrencies really make sense to use as currencies. Volatility in the crypto space has opened the door to explosive gains and made some investors very wealthy, but the tendency for token prices to fluctuate wildly poses problems.

For example, if a user thought the price of Dogecoin was going to rise even moderately from its price at some point in time, they probably wouldn’t have much reason to use it to buy Twitter Blue. Alternatively, companies that accept Dogecoin and other volatile cryptocurrencies as payment are effectively betting that the price will rise, rather than fall dramatically.

The fact that Dogecoin has questionable utility as a currency does not necessarily mean that its token price will not significantly rise above current levels, but there is still uncertainty as to whether companies accepting it as payments will prove be a bullish catalyst. Investors should understand that the token remains a high-risk, high-reward game.

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Keith Noonan has no position in the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, Tesla and Twitter. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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