Is it time to take Dogecoin seriously?
Is 900% returns over a span of 2 months possible?
Dogecoin (DOGE) was initially started as a joke, but the results and returns it had produced these past few months isn’t remotely funny. Earlier this year, Dogecoin became one of the top dogs. It moved rapidly up to the top 10 list of most valuable cryptocurrencies with a market cap of more than $10 billion.
To date, this meme coin is the 14th largest cryptocurrency in the world.
What is cryptocurrency and Dogecoin
Dogecoin is based off a viral doge meme of a Shiba Inu in 2013. It is one of the many popular cryptocurrencies you can buy online.
Cryptocurrency is a form of digital currency which is a type of money that only exists online. Other notable cryptocurrencies include Bitcoin (BTC), Ethereum (ETH), Polkadot (DOT), Cardano (ADA), and Binance Coin (BNB). There are over hundred types of cryptocurrencies, with each coin having its own pros and cons.
Due to the cryptocurrencies’ extreme volatility, they are considered highly speculative investments.
Why is Dogecoin so popular
The hype about Dogecoin started from the r/Wallstreetbets saga in January 2021. Prices soared when brokerages banned retails investors from buying GameStop (GME) and AMC Entertainment Holdings, Inc (AMC) stocks. Even rappers Soulja Boy and Snoop Dogg, rocker Gene Simmons, as well as Tesla’s CEO and founder Elon Musk joined in the mania.
Everybody wants to make money in the crypto world. With simply one tweet, many investors go into a frenzy buying into this meme coin. Investors now rely on crowd sentiments, while regular fundamental analysis like macroeconomic and microeconomic factors are thrown out of the window.
Sounds eerily similar to the dot-com bubble in the late 1990s, no?
Tech Bubble in the late 1990s
Many investors were eager to have a slice of the technology pie between 1995 to 2000. They were willing to invest in any company— so long as there is a “.com” at the end of its name. Naturally, these tech companies’ stocks soared to the moon—and crashed just as hard pretty quickly.
The reason behind this is simple: No one had ever seen something as powerful as the Internet. Everyone wanted in on the profits from these tech companies. While NASDAQ did eventually recover to its previous peak, it took longer than people expected— 15 years to be exact.
So to investors out there, is it advisable to invest or to not invest in Dogecoin given its highly questionable intrinsic value? Here’s our take on the matter.
Invest in Dogecoin
- Opportunity costs: Markets tend to go up far more often than they go down and prices are likely to be higher a year later in any given year. Apart from 2010 and 2020, imagine waiting for that big drop from 2009 to 2021. The markets continue to go up and the drop never comes. Markets also historically don’t dip enough for investors to meaningfully profit from the crash. The long-term gains that you missed out on can be huge.
- No cap on the existing coin supply: A main difference Dogecoin has from other cryptocurrencies is that the number of Dogecoin will never be reduced. More Dogecoin can be produced even if many buyers try to buy and hoard the digital currency. Dogecoin is also still a potentially viable transaction currency with its low transaction costs. There is always an incentive for the miners to keep the network running, unlike Bitcoin and other similar cryptocurrency if they reached their capped limit.
Don’t invest in Dogecoin
- Highly volatile: The biggest holders of Dogecoin still have the power to shake up the market if they drastically reduce their Dogecoin holdings, potentially leading to a steep drop in its price. The cryptocurrency scene is still booming and there are hundreds of cryptocurrency created. Out of these hundreds of cryptocurrency available, it’s very difficult to accurately predict which coin will become the mainstream cryptocurrency.
- Still not widely accepted: Cryptocurrencies have shown great potential but it’s still not enough to replace the Hong Kong dollar (HKD). Only a few people know about them and they still aren’t widely accepted. To date, the two most widely accepted cryptocurrency by major companies are Bitcoin and Ethereum. It’s tough to find a company that accepts Dogecoin. What’s the point of buying a currency that no one wants to accept?
- Security: The last update this meme currency received was in November 2019 (Dogecoin Core v. 1.14.2). Compared to Bitcoin or Ethereum, it’s theoretically easier to attack Dogecoin to steal coins from others due to its algorithm. With the recent surge in usage, Dogecoin’s developers are taking steps to make changes to update Dogecoin, but the updates still aren’t implemented fast enough.
Closing thoughts about Dogecoin
Most investments in the tech companies that were booming in the late 1990s are worth exactly $0 today and what happened in the past three months was a combination of pure speculation and delirious novelty.
For that reason, you shouldn’t put money you need in the next five years into Dogecoin, or any cryptocurrency for that matter. You should only invest money you are completely comfortable with losing.
As quoted in an old Reddit thread where it all began:
“Meme coins will have the same timeline as memes. Spike in popularity, then a gradual death.”
Disclaimer: Readers are advised that content on this website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any cryptocurrency. All information, opinions, and analysis included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult an investment professional and do your own due diligence before investing any of your money.