Written by Norman Isaac Mwambazi

Elon Musk question about Tesla accepting Dogecoin as payment pushes it to fourth most valuable cryptocurrency

We are only two days into the week but it is already proving to be a big week for cryptocurrencies. …

We are only two days into the week but it is already proving to be a big week for cryptocurrencies. After Ethereum hitting all-time highs yesterday by surpassing the $4,000 mark, Shiba Inu-based cryptocurrency dogecoin reclaimed its spot as the fourth most valuable cryptocurrency today, Tuesday, May 11, 2021.

This came after Elon Musk, CEO of automaker Tesla asked Twitter followers earlier today if the company should accept the token as payment for its vehicles, a move that could legitimize the highly volatile asset and restore some of the value it had lost after the billionaire called it a “hustle” on SNL Saturday last week.

Key facts

In the space of an hour, the billionaire’s tweet garnered over a million responses, with nearly 80% of people supporting the idea in a poll. This pushed dogecoin’s price to surge nearly 14% to around 53 cents a coin, down from an all-time high of 73 cents this weekend in advance of Musk’s SNL appearance.

The rally took dogecoin’s market capitalisation to over $68 billion, surpassing XRP as the fourth most valuable cryptocurrency.

Background

Musk’s highly anticipated appearance on Saturday Night Live whipped up doge-related interest online, prompting a weeklong rally that took it to new all-time highs of over 70 cents a coin.

It is worth noting that Musk is one of the most high-profile proponents of dogecoin and other cryptocurrencies especially Bitcoin, though he has urged people to invest with caution as it is still a speculative asset class. Dogecoin’s value plummeted 40% following Musk’s performance on SNL.

The token is volatile and highly responsive to Musk’s actions, with some of the biggest spikes for dogecoin coming after the token was mentioned by Elon Musk on Twitter, often with memes.

Bitcoin surged to a new all-time high in March after Elon Musk revealed the cryptocurrency could then be accepted as payment for Tesla vehicles, a hotly anticipated move first teased when Tesla revealed it had invested $1.5 billion in the rising asset and a signal of confidence that could bring Bitcoin closer to mainstream use.

After years of hesitation, major institutions like hedge funds and financial services providers are now embracing cryptocurrencies, if only to satisfy client demand.

Ether, Dogecoin gains see Bitcoin’s share of crypto market fall

Gains in Ethereum’s Ether, Dogecoin, and Binance Coin have seen Bitcoin’s share of the $2.6 trillion crypto market fall from nearly 70% to 43%.

Parabolic jumps in digital tokens such as Ether, Dogecoin and Binance Coin are outshining the biggest cryptocurrency, Bitcoin, prompting more questions about whether the cryptocurrency sector is ripe for a reckoning.

The rallies for these three cryptos in recent weeks have contributed to a plummet in Bitcoin’s share of the $2.6 trillion crypto market to 43% from about 70% at the start of 2021, a metric that for strategists at JPMorgan and DataTrek Research may be a warning sign of investor excess in a range of digital tokens.

A JPMorgan team led by Nikolaos Panigirtzoglou wrote in a note Friday that Bitcoin’s declining dominance carries echoes of “froth” to the extent it is being fuelled “by a rally in other cryptocurrencies like dogecoin and ether driven more by retail demand.

DataTrek’s co-founder Nicholas Colas has indicated that history suggests digital tokens outside Bitcoin can drop “pretty quickly” when Bitcoin’s share hits 40%.

Plenty of industry commentators, analysts, and investors have expressed worry for some time that the current peak in cryptocurrencies is fuelled by the stimulus package that was passed by the Biden administration – only to see them rally even more. But the worry is hard to shake in a sector that defies traditional investment analysis.