The Connection Between Dogecoin and Other Cryptocurrencies

Cryptocurrencies have exploded in popularity and valuation over the last decade. What started as an experiment with Bitcoin has ballooned into an entire industry of digital monies. With so many cryptocurrencies now available, it's natural to wonder how they relate to and affect each other. One of the most curious cases is the meme-inspired Dogecoin and its correlation to more mainstream cryptocurrencies like Bitcoin and Ethereum.

A Brief History of Dogecoin

Dogecoin was created in 2013 as a lighthearted alternative to mainstream cryptocurrencies. Based on the popular Doge meme featuring a Shiba Inu dog, Dogecoin was not designed for serious use but more as a fun community currency. The was created by Jackson Palmer and Billy Markus and got its name from the "doge" internet slang term and the fact that its logo featured the ubiquitous Doge meme dog.

Unlike Bitcoin, Dogecoin mining is easier due to the cryptocurrency using Scrypt technology. This allows everyday computers to mine Dogecoin without expensive ASIC mining rigs required by Bitcoin. Due to its infinite supply and relatively fast mining time of just one minute, Dogecoin transactions can be faster and cheaper compared to other cryptocurrencies.

The Rise of Dogecoin in 2021

While created as a lighthearted crypto, Dogecoin exploded in 2021 thanks to attention from Tesla CEO Elon Musk and viral trends on TikTok. Musk tweeted about Dogecoin multiple times, even calling it the "people's crypto." This celebrity endorsement helped push Dogecoin's price up over 12,000% from $0.005 in January to $0.69 in May 2021.

TikTok users also promoted Dogecoin with viral videos encouraging viewers to invest in the crypto. This perfect storm of mainstream attention and internet hype propelled sleepy Dogecoin into a top 10 cryptocurrency with a market capitalization of over $80 billion at its peak.

Correlation of Dogecoin to Bitcoin Prices

As the original and most well-known cryptocurrency, Bitcoin is considered the gateway crypto for most investors getting started in the space. Due to this premier status, Bitcoin price movements often dictate the rest of the crypto market. Dogecoin, along with other altcoins, tends to follow Bitcoin's trajectory.

Research shows a clear correlation between Dogecoin and Bitcoin price changes. During Bitcoin bull runs like in late 2017 and 2021, Dogecoin also experienced substantial gains even with no major developments in its own technology.

Conversely, when Bitcoin prices decline substantially as in 2018 and 2022, Dogecoin and other altcoins follow the downtrend. This is logical since crypto investors often cash out altcoins to Bitcoin or stablecoins during market declines. As Bitcoin goes, so goes the wider crypto market.

Relationship to Ethereum

As the second largest cryptocurrency, Ethereum is another major indicator for the crypto market. Dogecoin and Ethereum do not have as strong price correlation as Dogecoin and Bitcoin. However, since many altcoins rely on the Ethereum network to operate, Ethereum price trends can impact them.

During the crypto boom of 2021, Ethereum reached new highs along with Bitcoin. Dogecoin rode this wave to its own peak in May shortly after Ethereum hit $4,000. When the crypto market declined in 2022, Ethereum dropped below $1,000, which contributed to Dogecoin also falling from its 2021 heights. But since Dogecoin operates on its own blockchain, it is not as directly impacted by Ethereum price swings.

The correlation appears weaker between Dogecoin and Ethereum than with Bitcoin. But as a top indicator of market strength, major price changes in Ethereum do seem to contribute to price trends for Dogecoin and other cryptocurrencies.

Key Takeaways on Correlations

In summary, here are some key points on the correlations between Dogecoin and the two major cryptocurrencies Bitcoin and Ethereum:

• Dogecoin prices have high correlation to Bitcoin price movements, often following Bitcoin's general trends.
• Both Dogecoin and Bitcoin saw massive gains in 2021, followed by declines in 2022.
• Ethereum price changes have some correlation to Dogecoin but less than Bitcoin, since Dogecoin has its own blockchain.
• Ethereum major bull runs or bear declines contribute to similar trends in Dogecoin prices.
• As leading cryptocurrencies, Bitcoin and Ethereum dictates overall market momentum, which impacts altcoins like Dogecoin.

Does Dogecoin's Popularity Affect Other Cryptocurrencies?

With its meme-inspired origin and bursts of viral popularity, an interesting question is whether Dogecoin's hype acts as a rising tide for other cryptocurrencies or has a neutral effect.

The biggest spike in Dogecoin's popularity was in early 2021, driven by tweets from Elon Musk and TikTok videos urging investment in the crypto. This surge did precede new highs in Bitcoin and Ethereum later in 2021. However, it appears Dogecoin's hype was just part of a broader enthusiasm for cryptocurrencies rather than the direct cause.

In fact, some cryptocurrency supporters resent Dogecoin as a parody that makes the industry seem unserious. The crypto's infinite supply also goes against ideals of digital scarcity that back currencies like Bitcoin. During Dogecoin's rallies, some Bitcoin enthusiasts have dismissed the meme coin's gains as unsustainable and distracting from deeper crypto technology.

Overall, Dogecoin's viral hype likely does not significantly affect mainstream cryptocurrencies. Its popularity stems from memes rather than technological innovation. While good for short-term Dogecoin spikes, this meme status does not provide lasting value to lift all cryptocurrencies. The broader crypto market is instead moved by adoption and development in leading cryptos like Bitcoin and Ethereum.

Will Dogecoin's Price Ever Correct Back to its Fundamentals?

Unlike many other cryptocurrencies, Dogecoin has little underlying technology or utility to justify its multibillion dollar valuation. This raises the question of whether the crypto's price will ever correct back down to reflect its actual low fundamental value.

On the one hand, Dogecoin's valuation is hugely inflated by hype and meme status rather than technological merit. This suggests its price should eventually fall to reflect the reality of its low utility for payments or decentralized finance. Just as many internet stocks crashed after the dot-com bubble, Dogecoin could follow a similar path back down to earth.

However, Dogecoin also benefits from its brand and community building a devoted following beyond just speculative investors. Its longevity past one-time viral moments shows Dogecoin is more than a flash in the pan. With Elon Musk's continued patronage and growing crypto adoption worldwide, Dogecoin may be here to stay at substantial valuations, even if it lacks the sophisticated use cases of other cryptos.

Conclusion

While created as a parody crypto, Dogecoin has defied skeptics to become a major cryptocurrency with lasting power. Its prices are highly correlated to the overall market leader Bitcoin, often following similar boom and bust cycles. Ethereum also has some price influence although less direct than Bitcoin. Based on these relationships, Dogecoin's valuation appears heavily dependent on mainstream crypto prices rather than acting as an independent indicator itself. The meme crypto's future will likely continue riding the ebbs and flows of Bitcoin and Ethereum, demonstrating the outsized influence top cryptocurrencies have over the overall crypto ecosystem.