Dogecoin: Not All Cryptos Are Created Equal

Cryptocurrency, it seems, is having a cultural moment. While those of us who have been on the crypto wagon for years know how rapidly bears can transform into bulls (and vice versa), it seems like the general populace rediscovers volatility every new cycle.

The news of the weekend has, of course, been dominated by the wild volatility of Dogecoin, the one-time (and possibly still) joke crypto based on a popular meme. On Sunday afternoon, the price spiked to $0.087, urged on by supportive tweets from the likes of Elon Musk, Snoop Dogg, and Gene Simmons of KISS.

A quick scan of the popular r/dogecoin channel on Reddit revealed people who were maxing out credit cards, investing life savings, and bragging about having "diamond hands," a euphemism for holding their positions indefinitely. While a few investors expressed what could be reasonably described as conservatively optimistic views, most were focused on what kind of Ferrari they would buy when Dogecoin hit $1,000.

I don't think that the Dogecoin mania will end well for anyone other than the earliest investors. Make no mistake; not all cryptos are created equal. If you want to take advantage of the crypto rally of the moment, you'd be better served by investing in Bitcoin. Here's why:

Scale and Adoption Are The Key To Success

There are two monopolies that governments will defend above all else: violence and currency. The monopoly on violence has, in many respects, has been one of the greatest innovations in human history. Put simply, this refers to the understanding that only government-sanctioned institutions, like the police or military, can use violence in a given territory when appropriate. This monopoly is rarely challenged in advanced countries, and for a good reason.

The monopoly on currency, however, is now under attack. Decentralized finance empowered via the blockchain represents an existential threat to central governments and banks' ability to control the supply of money. Historically, whenever a monetary challenger has arisen, it has been quickly stamped out by the powers that be.

The story of Bitcoin, however, has been different. Perhaps it was a matter of timing, or maybe it was the system's fundamentally decentralized nature, but for some reason, Bitcoin took hold.

This small foothold enabled it to grow both in terms of value and adoption. While numerous other cryptocurrencies have followed the path blazed by Bitcoin, none have come close to its notoriety and adoption. Like Dogecoin, smaller currencies may go through dramatic pump and dump cycles that generate buzz, but buzz does not a currency make.

Celebrity Endorsements Are Great, But It's The Institutional Money That Really Matters

Look, I love Snoop Dogg and Gene Simmons as much as the next guy, but their endorsements don't mean much in the scheme of things. Dogecoin's rise is the result of a unique intersection of hype and lack of knowledge.

I don't mean this as a knock to smaller crypto investors at all. If anything, I'm worried for them in the near-term. In finance, the proof is in the pudding. The movement of assets speaks louder than any tweet.

Of the roughly $700 billion in Bitcoin at the moment, only about 1% of that money is from institutional sources. That's about to change. Major institutions, like Goldman Sachs, are poised to join the likes of Anthony Scaramucci's Skybridge Capital and, of course, Tsangs Group as holders of Bitcoin.

This signals that Bitcoin has been, and will likely continue to be, the winner of the crypto "survival of the fittest" battle we've been witnessing.

Crypto Is The Future, But Be Careful

I'm a firm believer that cryptocurrency represents the future of the post-nationalist world. Finally free of the intervention and manipulation of central banks, decentralized finance will likely usher in a new level playing field for everyone.

Evolution, however, isn't always a tidy process. The growing pains can be as wild as they are gruesome. Like many other alternative cryptos, Dogecoin may very well be seen as an evolutionary aberration in the years to come. In the meantime, my advice is to stick with the established currencies and ride the Bitcoin wave into the future.