Why Dogecoin is soaring today

Elon Musk is giving Dogecoin another big boost.

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A cartoon graphic of a dog with virtual coin in mouth.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Dogecoin (CRYPTO: DOGE) is making big gains in today's trading. The popular, meme-themed cryptocurrency was up roughly 7.2% over the previous 24-hour period as of 12:15 p.m. ET Sunday.

Tesla CEO Elon Musk purchased a 9.2% stake in Twitter recently, making him the social media company's largest shareholder and resulting in him joining the company's board soon after. Yesterday, Musk made comments stating that he believed that users should be able to pay for the Twitter Blue premium subscription service with Dogecoin, and his comments have prompted big gains in the token's price. 

So what

Dogecoin has been making gains lately despite bearish pressures impacting the broader crypto space. It's one of the very few top-100 tokens to be in the green over the last week, and investors in the popular meme token can once again thank Tesla's Elon Musk for the pricing gains. 

Musk has been one of the most high-profile champions of the cryptocurrency, and the influential tech figure has said that it's one of only three cryptocurrencies he owns -- along with Bitcoin and Ethereum

Now what

Outside of pure speculation and market momentum, increased user adoption and payment use cases are one of the main factors that could work to drive the price of Dogecoin higher. However, there are still some reasons to be skeptical of whether Dogecoin and other cryptocurrencies actually make much sense to use as currencies. Volatility in the crypto space has opened the door for explosive gains and made some investors very rich, but the tendency for big token pricing swings comes with problems.

For example, if a user thought that the price of Dogecoin was going to go up even moderately from its price at a given time, they probably wouldn't have much reason to use it to purchase Twitter Blue. Alternatively, companies that accept Dogecoin and other volatile cryptocurrencies as payment are effectively gambling that the price will increase, rather than decrease substantially. 

The fact that Dogecoin has a questionable utility as a currency doesn't necessarily mean that its token price won't climb significantly above current levels, but there's still uncertainty about whether businesses accepting it as payments will prove to be a bullish catalyst. Investors should understand that the token remains a high-risk, high-reward play. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Bitcoin, Ethereum, Tesla, and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 

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