Dogecoin, a cryptocurrency that started as a parody, achieved a market value of over US$2 billion last week.
Amid its skyrocketing value, its creator, Jackson Palmer, recently expressed his concern about the massive speculation over bitcoin and other virtual currencies, saying that 2017 was “the worst year yet for crypto coins”.
“Dogecoin’s valuation is the result of a market mania that has resulted in inexperienced investors buying up low-priced assets on a whim, hoping that they will follow bitcoin’s meteoric trajectory,” Palmer wrote in an article published by tech news website Motherboard.
For Palmer, the cryptocurrency market has become a bubble, and the question is not whether it will burst, but “how much the current crypto bubble will inflate, or when it’ll burst”.
Dogecoin’s price has eased after reaching a record high last week. As of Monday, it was trading at US$0.0112 per token, with a market capitalization of US$1.27 billion.
Palmer is an Australian entrepreneur who is now based in San Francisco.
According to his article, Dogecoin “started as a parody of the multitude of alternative cryptocurrencies, or ‘altcoin’, flooding the market at the time.”
The tokens began to be attractive to newcomers in crypto assets because of its low price and welcoming community.
By 2015, “huge sums of venture capital continued to pour into fresh cryptocurrency companies backed only by buzzword-laden websites and lacking any discernible business model”, he said.
Because of the change in atmosphere, Palmer decided to back away from any involvement in Dogecoin, and handed its development over to a team of community members.
“I saw the space being overrun by opportunists looking to make a buck, rather than people investing in evolving the technology,” Palmer wrote, adding that he still has holdings in various cryptocurrencies, including less than US$50 worth of Dogecoin.
“In early 2017 when my Uber drivers started talking to me about Ethereum, I knew we were entering a renewed period of speculative crypto-mania,” he said.
The huge surge in the market cap of Dogecoin, described by Palmer as “a [crypto-] currency that hasn’t received a software update since 2015”, also set off alarm bells.
“This irrational enthusiasm, coupled with large players manipulating largely unregulated markets, has resulted in a weekly cycle of rallies and crashes across just about every crypto asset,” he said.
The speculation craze and the continued focus on the potential to “get rich quick” distracted people from the laudable goals that projects like bitcoin set out with.
More importantly, the underlying technology of the largest cryptocurrency, bitcoin, is indeed still facing serious technical challenges that need to be addressed, Palmer said, referring to bitcoin’s soaring transaction cost, which he blames for the cryptocurrency’s low level of merchant adoption.
Bitcoin and other cryptocurrencies enjoyed an explosive growth in value and popularity in 2017. However, for Palmer, 2017 marked the year that “cryptocurrency stopped being about technologically innovative peer-to-peer cash and instead essentially became a new, unregulated penny stock”.
What worries Palmer most, he wrote in the article, is that when the bubble bursts, “will the community be able to recover the energy it needs to build real, innovative technology once again?”
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