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Is Dogecoin’s Performance Dependent On Elon Musk’s Mood?

Dogecoin, one of the most famous “meme coins” on the market, skyrocketed last year - its rise was supported by significant influence from Elon Musk, the CEO of Tesla and SpaceX. Has DOGE become dependent on Musk?

Dogecoin took a trip to the moon last year. Starting its rise in early January 2021, it saw its price appreciate by 6,000%, eventually peaking in May 2021. DOGE first emerged as a joke; it was meant to lampoon the highly speculative cryptocurrency market. Yet despite its humble origins, it has reached a market cap of $85 billion and boasts a faster transaction processing time than Bitcoin. DOGE transactions take only a minute to confirm, while Bitcoin transactions take ten minutes.

Dogecoin really began gaining traction after SpaceX and Tesla CEO Elon Musk stated that DOGE was one of his favorite cryptocurrencies; since then, he has occasionally posted tweets related to DOGE, each of which has tended to trigger incredibly bullish movement for the coin.

Given this pattern, many Dogecoin investors and traders have used Elon Musk’s DOGE tweets to inform the timing of their own buying and selling. Here, we take a deeper look into whether Dogecoin’s price is really dependent on Elon Musk's mood.

Figure 1: Dogecoin's logo.

Figure 1: Dogecoin's logo.

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Elon Musk on DOGE: "The People's crypto”

Mr. Musk, or the “DOGE King,” is a brilliant but eccentric fellow, to say the least. Involved in industries ranging from electric vehicles to space exploration, Elon Musk possesses an unbelievable power to influence the markets, often through his 70+ million Twitter followers.

The successful CEO of Tesla and SpaceX has only three cryptocurrencies in his portfolio: Bitcoin, Ethereum, and, obviously, Dogecoin (which is also held directly by SpaceX).

As early as 2019, Elon Musk was already talking about Dogecoin being his favorite crypto, possibly due to the coin being both a meme and joke on the high speculative market, both traits that meshed well with his playful personality.

According to the man himself, Musk decided to start supporting DOGE in earnest in early 2021 because several people in the Tesla’s and SpaceX’s production lines had DOGE in their wallets, apparently for no good reason at all. Knowing that these DOGE holders were not crypto or financial experts, he concluded that DOGE was the "people's crypto.

It was only two full years after DOGE was released that, thanks in part to tremendous momentum generated by Reddit communities, the cryptocurrency skyrocketed. Dogecoin has a meme-based DNA, so the catalysts for its rise didn’t necessarily have to be rational. Musk, one of the most influential world personalities (who also happens to be involved in space exploration), backing the coin and tweeting "to the Moon" provided all the jet fuel necessary for the coin to skyrocket.

However, considering that extreme volatility and astronomical gains are not uncommon among cryptocurrencies, it is notable that, since May of last year, DOGE has never been able to replicate or even come close to the 6000% gain it saw in the early months of 2021. From May of last year until now, the cryptocurrency’s volatility has leveled out significantly.

Figure 2: DOGE 1-year period performance.

Figure 2: DOGE 1-year period performance.

DOGE and Bitcoin correlation

Bitcoin is considered to be the mother of all cryptocurrencies - market watchers believe its performance tends to affect the performance of the overall crypto market.

The numbers back up this sentiment, as many large cryptocurrencies' prices are indeed moderately, positively correlated with Bitcoin’s price. Dogecoin’s price has moved partially in tandem with Bitcoin’s, sporting a correlation coefficient of +0.40 — (+1.0 would imply perfect positive correlation, 0 would imply no correlation at all, and -1.0 would imply perfect negative correlation).

Looking at the correlation between price and other factors, the correlation Dogecoin has with the number of Tweets about it (among other social interactions) is +0.32. For Bitcoin, that correlation is nearly zero. The connection between Dogecoin’s price and the number of Twitter mentions DOGE gets is striking — but it’s also important to note that Bitcoin has a much larger transaction volume than other cryptocurrencies, meaning individual tweets may be much less primed to move the needle on its price.

Dogecoin is also extremely correlated with median transaction fees, sporting a correlation coefficient of +0.98. Bitcoin’s coefficient is just +0.46.

So, is DOGE dependent on Elon's Tweets?

Elon Musk's tweets often provoke immediate reactions in Dogecoin’s performance, as seen from his several Dogecoin-related tweets posted on February 4, 2021 (see below); DOGE grew more than 50% in the four days after these tweets. And the increased attention helped lead to Reddit’s embracing the meme coin, which would later cause it to skyrocket from $0.07 cents to $0.60 cents.

More recently, Musk announced that Tesla merch could be purchased with Dogecoin. DOGE jumped 13% immediately after the announcement.

A characteristic of meme coins, just like meme stocks, is that these assets’ performance tends to be disconnected from their underlying technology or true valuation.

Elon Musk was certainly an important factor ramping up Dogecoin’s popularity. But since DOGE may have reached its popularity peak, those willing to hold DOGE for the long-term could be faced with price declines during “boring” (i.e., tweet-free) periods.

For traders, Elon's tweets have been shown to have a real impact in the very short term. Give it a few days, however, and the influence of Elon’s Dogecoin-related tweets tends to fade away, and DOGE’s price goes back to being influenced primarily by other market factors.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)