Crypto goes barking mad: It began as a prank primarily based on a cute pup, however now Dogecoin has soared in worth – however traders should beware

Donald Trump’s election victory has ushered in a new boom for Bitcoin, the world’s best-known cryptocurrency.

The return of The Donald has also prompted a surge in the value of Dogecoin, a ‘meme-coin’, due to its ties with Tesla boss and Trump favourite Elon Musk.

Dogecoin, whose name has nothing to do with the rulers of Venice but is a deliberate mis-spelling of dog, has soared by 128 per cent since the result of the November 5 election.

Bitcoin has gained ‘just’ 31 per cent over the same period.

Dogecoin was invented a decade ago by two software engineers who decided to create a payment system as a joke, to make fun of the mania for crypto.

Meme-coins are digital currencies inspired by characters or themes in internet culture – in the case of Dogecoin, a cute Japanese pooch. Dogecoin took off in 2021 when Musk – initially also as a prank – endorsed the currency, sparking social media hype. It even briefly featured on the shirts of Watford FC.

Despite its satirical origins, some people have clearly made serious money from it. But anyone looking to cash in on the current cryptocurrency boom could find the joke is on them.

The extremely volatile and unregulated sector has a long history of creating – and destroying – fortunes overnight.

The UK’s finance watchdog, the Financial Conduct Authority, has repeatedly warned crypto fans that they should be prepared to lose all of their money. And anyone who falls prey to a scam will have no safety net. Digital currencies fall outside of the UK’s consumer protection system and compensation schemes.

Dogecoin is by far the most popular of the meme-coins, with the supposed total market value of all of the coins at £43.4 billion, according to crypto pricing website CoinMarketCap. That is more money than the market capitalisation of FTSE 100 defence group BAE Systems.

The latest spike in the coin’s value came after Trump announced the creation of the Department of Government Efficiency. The initials, eagle-eyed observers noted, form the acronym Doge.

The department, whose brief is to sweep away red tape, will be led by Musk alongside Vivek Ramaswamy, a businessman and former Republican presidential candidate. Musk, who sometimes styles himself as the ‘Dogefather’, frequently uses his platform X – formerly Twitter – to promote Dogecoin.

Some meme-coins have developed zealous online fanbases that have helped to propel their total values into the billions.

Dogecoin is the biggest. Others include Shiba Inu, which is named after the Japanese dog breed that inspired Dogecoin and has a total value of £11.3 billion. Pepe, based on an internet meme of a cartoon frog, has a total market value of £7 billion.

For the uninitiated, cryptocurrency is the name given to different types of digital money that use a technology known as a blockchain – effectively an online version of an accounting ledger.

Because the system only exists on the internet, it does not require banks to process payments. It is stored in digital wallets that are accessed using a digital key or password.

Buying crypto is similar to purchasing stocks and shares. US operator Coinbase, one of the world’s biggest crypto exchanges, is registered with the FCA. Other large registered exchanges include Crypto.com and Kraken.

Users can open online accounts and deposit conventional money, which can be used to buy crypto in a similar way to a stock trading account. Some share platforms also offer the option to buy crypto.

But even if a crypto exchange is registered with the FCA, cryptocurrencies as an asset are not covered by the UK’s Financial Services Compensation Scheme or consumer protection rules. Exchanges register with the FCA only to allow them to hold consumers’ real-world money in trading accounts.

This means that if your cryptocurrency is stolen or lost, you will not get your money back. Crypto is not legal tender in the UK, though shops and online retailers can accept it if they want to. The only countries where it is legal tender is El Salvador and the Central African Republic.

The value of crypto is not underpinned by a central bank such as the Bank of England. But the UK took a tentative first step towards official crypto when the Chancellor, Rachel Reeves, revealed in her Mansion House speech on Thursday that the Treasury would support the issue of digital gilts, or government IOUs.

It hinges on the hope that it will become more popular and that demand from buyers will push up the price. The opposite is also true, however, and cryptocurrencies are subject to massive falls in value if people start to sell.

For meme-coins such as Dogecoin, these swings can be wild and occur even faster than with older digital coins such as Bitcoin.

Trump has previously promised to make the US the ‘crypto capital of the planet’ and has floated the idea of creating a strategic Bitcoin reserve.

The president-elect has also pledged to sack Gary Gensler, the head of the US financial watchdog, who has led a years-long crackdown on the industry.

Due to its lack of regulation, the crypto world has also become awash with scams, with people claiming to have created new Bitcoin rivals to lure in investors. People then spend real-world cash to buy digital coins through the promise of massive and quick returns.

After the value of a digital coin has been inflated, those behind a fake project will then suddenly shut it down and disappear, taking the cash with them.