Bitcoin and Ethereum rise this week as Dogecoin falls
Popular cryptocurrencies Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are about to end a good week. As of this writing Thursday afternoon, cryptocurrencies are up 5.6% and 4.2% respectively since last Friday afternoon, according to data from S&P Global Market Intelligence.
But not all popular cryptocurrencies are on the rise. For its part, Dogecoin (CRYPTO: DOGE) is down 6.5% over this period. And perhaps these divergent trends are best explained by why these cryptocurrencies are popular. It is not the same in each case.
Image source: Getty Images.
Cryptocurrencies are speculative investments, but Dogecoin is perhaps more speculative than most. It was originally created as a joke and has gone largely unnoticed for years. Then in 2020, tokens started to rise in value as people on social media theorized what would happen if they ever hit $ 1 per coin – coins were well below a dime back then. .
The buzzing kept getting louder and finally reached the ears of You’re here founder Elon Musk, who used his influence on social media to bring more attention to Dogecoin. During this time, Dogecoin was not necessarily adopted in the trade, but instead people were speculating on its value.
This is not to say that Dogecoin has no utility – indeed, it can be used for things. For example, AMC Entertainment will soon accept Dogecoin as a payment option. But I think it’s fair to say that people are investing in Dogecoins more than they are using them, hoping the value will increase.
The problem here is that it looks like social media attention has shifted from Dogecoin to Shiba inu coin – itself a parody of Dogecoin. In fact, it looks like Musk has found a new love, sharing Shiba Inu memes in recent weeks. And now that Coinbase supports trading for Shiba Inu, it is easier than ever for speculative trading to go to Shiba Inu. As proof of this change, consider that the volume of Shiba Inu coin trading was more than double that of Dogecoin today, according to CoinMarketCap, even though neither was making headlines.
Three-month returns for Bitcoin, Ethereum, and Dogecoin. Dogecoin price data by YCharts
Dogecoin appears to be losing momentum as other speculative cryptocurrency investments like Shiba Inu gain prominence. This doesn’t mean that utility won’t increase for Dogecoin over time – it might. And that doesn’t mean traders won’t come back to Dogecoin – they might. This simply contrasts with cryptocurrencies like Bitcoin and Ethereum, where utility thrives and serves as a catalyst to send tokens higher.
For example, Ethereum is currently in transition to what some are calling Ethereum 2.0. This update completely changes how the blockchain works and should make it faster and less energy intensive. This is happening because the coins are being used more than ever. The upgrade – officially known as EIP-1559 – should not only make it more useful, but it could also send the value of the cryptocurrency to higher levels.
And when it comes to Bitcoin, like Ethereum, it does an upgrade commonly known as Taproot. Again, the reason for the upgrade is utility – it needs to be able to process transactions faster and cheaper while requiring less power. This is because its adoption is growing. El Salvador has adopted it as legal tender and Brazil has indicated it could do the same.
That’s not to say that speculation doesn’t determine the prices of Ethereum and Bitcoin. For example, Dallas Mavericks owner Mark Cuban recently sent Ethereum higher suggesting it is the best cryptocurrency to buy. And that doesn’t mean that everyone will embrace these cryptocurrencies. For example, the President of Mexico recently said that the country will not use Bitcoin like El Salvador.
Dogecoin can therefore be used. And Bitcoin and Ethereum can also be pushed higher by speculation. But there seem to be some predominant trends at play with each. It looks like Dogecoin is losing its luster with traders as Bitcoin and Ethereum continue to gain long-term adopters. I believe that explains the diverging prices this week.
Finally, what happened last week doesn’t really tell us what will happen in the weeks to come. The cryptocurrency space is young and still subject to rapid change. What happened this week could be reversed next week.
If you are interested in cryptocurrencies, I suggest that you start by researching the ones that are increasingly used for real world applications. These have the greatest chance of long term success, in my opinion. Bitcoin and Ethereum are strong candidates in this regard, but they are certainly not the only ones.
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Jon Quast owns shares of Bitcoin and Ethereum. The Motley Fool owns stocks and recommends Bitcoin, Ethereum, and Tesla. 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.