Are Tesla and Elon Musk Enough to Make Dogecoin a Bitcoin Killer?

Elon Musk Tweets, Dogecoin Spikes

The first thing to note about Musk’s announcement was that it was fairly noncommittal.

Source: Twitter

As the tweet above shows, only “some” merch will be open to purchase with dogecoin. Likewise, Tesla will “see how it goes,” a phrase which basically reserves the company the right to stop accepting DOGE if they don’t like how things have panned out (for whatever reason).

This brings to mind Tesla’s purchase of $1.5 billion in bitcoin, which at the time was coupled with a vague commitment to accept BTC as a means of payment at some undetermined point in the future. However, under pressure from critics who noted the irony of an ‘eco-friendly’ electric vehicle manufacturer accepting payment in a cryptocurrency which consumes large amounts of electricity, Tesla backtracked on this vague commitment in May, effectively causing a bear market that lasted nearly three months.

In other words, a tweet from Musk arguably isn’t worth the figurative paper it’s printed on. Still, DOGE did indeed rally bigly on December 14, with its relative strength index (a comparison of average gains and losses that indicates momentum) passing 90 out of 100, indicating that it quickly became overbought.

Source: TradingView

While the rally did quiet down, there was little doubt that much of the Dogecoin community was blown away by news. Many are now expecting or pushing for Tesla to accept DOGE as payment for all of its products, and not just merchandise.

Source: Twitter

Musk is Serious About DOGE

Obviously such Dogecoin fans can hardly be trusted as to whether Tesla would push its embrace of DOGE further. That said, Musk does really appear to be a serious backer of the cryptocurrency, and his association with it may help it to become a bigger, more viable platform.

For instance, an interview between Musk and Time magazine published on December 13 found the Tesla CEO arguing that Dogecoin is better than Bitcoin for everyday transactions.

Source: Twitter

“The transaction volume of Bitcoin is low, and the cost per transaction is high. It is, at least at its base layer, suitable as a store of value. But fundamentally, Bitcoin is not a good substitute for a transactional currency. And even though it was created as a silly joke, Dogecoin is better suited for transactions […] Its transactions per day has much higher potential than Bitcoin. It is slightly inflationary, but that inflationary number is a fixed number as opposed to a percentage. So that means that, over time, its percentage of inflation actually decreases. And that’s actually good because it encourages people to spend,” he said.

Given that Time magazine had just made Musk its person of the year for 2021, these remarks weren’t made lightly. Instead, they indicate just how much Musk believes in Dogecoin, even if it did start as something of an in-joke, as the Tesla founder notes in the interview.

Musk’s apparent commitment to Dogecoin as a potential transactional cryptocurrency also chimes with his previous involvement with the coin’s development. For instance, Musk revealed in May that he’d been working with Dogecoin developers on improving “system transaction efficiency.” Around this time, developer Ross Nicoll disclosed that Musk had in fact been communicating with Doge devs as far back as 2019, again mostly in relation to transactional throughput.

Nicoll also revealed that, aside from offering his own advice (Musk also co-founded PayPal in a previous life), the Tesla/SpaceX man has also been helping developers make contact with people with relevant technical experience.

Also in May, Elon Musk took to Twitter again to actively solicit development help and contributions for Dogecoin. Together with his previous involvement, such actions suggest that Musk may continue to support Dogecoin in various ways for the foreseeable future, further increasing the chances that it genuinely does develop into a more capable cryptocurrency.

Bitcoin Will Always Be Better for Payments than Dogecoin?

However, while Elon Musk’s interest in Dogecoin gives the cryptocurrency a better chance than many other meme coins, it really does have a long way to go before it could seriously rival Bitcoin as a transactional currency.

Because even though Bitcoin arguably isn’t even set up as a means of payment (although this is gradually changing thanks to its Lightning Network), it still seems to be accommodating more transactions right now and also has better prospects as far as future development is concerned.

Not only is there the anecdotal evidence of bitcoin being accepted as (legal) tender in countries such as El Salvador, but Bitcoin objectively handles more transactions and hosts more wallet addresses.

According to BitInfoCharts, Bitcoin processed 289,000 transactions in the past 24 hours, and also supported 925,000 active addresses. By contrast, Dogecoin processed 34,000 transactions and supported 75,000 addresses.

On top of this, while GitHub commits for Dogecoin in the past 12 months reached 281, those for Bitcoin totalled 2,799. Put simply, Bitcoin benefits from 10x the development activity of Dogecoin, so if either of these cryptocurrencies is going to become a serious means of payment, it’s arguable that it’s Bitcoin.

Such evidence raises the suspicion that, despite his apparent seriousness, Musk’s recent pronouncements concerning Dogecoin may be an attempt to boost the value of his DOGE holdings.

Indeed, manipulation — in relation to bitcoin — is something that the likes of Nouriel Roubini and Magda Wierzycka have accused Musk of before. Musk has strenuously denied this, of course, noting that Tesla still holds the bulk of its bitcoin purchase, and wasn’t interested in a quick pump-and-dump. Still, with Dogecoin a long way off Bitcoin in terms of its development and capabilities, it does make you wonder whether Musk is overly optimistic or just playing a game.