Tesla CEO Elon Musk recently announced that the electric vehicle manufacturing company will start accepting Dogecoin, a form of cryptocurrency, as payment for merchandise on a test basis, causing the price of the currency to spike.

In a Twitter post, Musk said that Tesla was going to make merchandise that customers can buy using Doge as an experiment and see how it goes. The billionaire CEO's announcement caused Dogecoin's price to jump 24%, becoming $0.195.

Dogecoin Price Spike

Some of the products that Tesla sells as merchandise include apparel, belt buckles, mini models of electric vehicles, quad bikes for kids called "Cyberquad", and "Cyberwhistle", which is modeled after its long-awaited Cybertruck.

Previously, Tesla announced it would no longer be accepting Bitcoin from customers who are looking to buy its electric vehicles. The announcement was made less than two months after the manufacturing company began taking payments of the world's biggest digital currency, the Times of India reported.

Musk is known for frequently talking about Dogecoin compared to other cryptocurrencies as he calls it his "favorite digital coin." The billionaire CEO even mentioned it when he made an appearance on NBC's "Saturday Night Live."

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In 2013, the creators of Dogecoin Billy Markus, and Jackson Palmer started the idea as a joke, taking the branding from the Japanese Shiba Inu dog that became the inspiration for the original "doge" meme that is popular among social media users. Earlier this year, a combination of Musk's tweets and a sudden surge of interest from amateur investors caused a speculative frenzy in the cryptocurrency, causing its price to increase.

At the start of the year, the cryptocurrency was only worth a fraction of a penny and quickly rose to have a record-high price above 74 cents in May. However, since its spike, its value quickly dropped back down and became 20 cents per coin. Currently, Dogecoin is down 70% from its all-time high price, CNBC reported.

Cryptocurrency Utility

One of the reasons that are suspected to be the cause of the sharp drop in Dogecoin's price despite Musk's announcement is that merchandise is a small utility that may not last long in the crypto world. Additionally, the cryptocurrency, similar to other meme-based cryptocurrencies such as the Shiba Inu coin, primarily relies on social media hype and chatter for its price.

The more people that talk about it and take an interest in it, the more people that will invest in it, causing its price to rise. Despite Musk's continued advertisement of Dogecoin to the public, the cryptocurrency's value could only rise if it gains utility, said Dallas Mavericks owner Mark Cuban in May.

While Cuban accepts Dogecoin as a form of payment for products sold at the Dallas Mavericks team store, he said that more companies need to accept the cryptocurrency in exchange for products and services before it can become a usable currency, Deseret reported.

There are some crypto investors, however, who believe that Dogecoin is bad for the market, including the CEO of Ripple, Brad Garlinghouse. Others have said that it is a phenomenon similar to "meme stocks" such as GameStop and AMC.

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