Cryptocurrencies like Bitcoin and Ethereum have exploded in popularity in recent years. One crypto that has gained a lot of attention lately is Dogecoin. Dogecoin started out as a joke based on the Doge meme in 2013. However, it now has a market cap of over $10 billion. So should you invest in Dogecoin? Here are some pros and cons to consider.
What is Dogecoin?
Dogecoin (DOGE) is a cryptocurrency that was created in 2013 by software engineers Billy Markus and Jackson Palmer. It started as a satirical cryptocurrency inspired by the popular Doge meme. The Doge meme features a photo of a Shiba Inu dog with multicolored text in comic sans font around it.
Unlike Bitcoin, which has a limited supply of 21 million coins, there is no cap on the supply of Dogecoin. New Dogecoin can be mined endlessly. This means there are already over 100 billion Dogecoin in circulation.
Dogecoin runs on its own blockchain, similar to Bitcoin. Transactions are verified through a mining process. Dogecoin's block time is 1 minute, much faster than Bitcoin's 10 minutes. This allows for faster transaction times.
Pros of Investing in Dogecoin
One of the main benefits of Dogecoin is its speed. Transactions get confirmed in about 1 minute, compared to 10 minutes or longer for other major cryptocurrencies like Bitcoin and Ethereum. This makes Dogecoin useful for smaller, everyday transactions.
Currently, sending Dogecoin costs just a fraction of a cent. This makes it practical to use Dogecoin for microtransactions, or sending small amounts of crypto online. Compare this to Bitcoin, where transaction fees can be upwards of $20.
Large and Active Community
Dogecoin has developed an active online community. The r/dogecoin subreddit has over 2 million members. Having a robust community provides value and staying power for a cryptocurrency. The large community also leads to increased adoption.
Limited Supply Per Block
While there is no cap on the total supply of Dogecoin, there is a limit to how much can be mined per block. Each block is limited to 10,000 new DOGE. This helps control the inflation rate and prevents miners from flooding the market.
Elon Musk Support
Elon Musk has tweeted favorable things about Dogecoin and even called himself the "Dogefather." This celebrity backing has boosted the popularity and price of Dogecoin.
Cons of Investing in Dogecoin
No Development Activity
Unlike protocols like Ethereum, there is minimal developer activity on Dogecoin currently. No major upgrades have been implemented recently. Without active development, Dogecoin risks falling behind technically to newer cryptocurrencies.
High Inflation Rate
The lack of a supply cap means new Dogecoin is always entering circulation. Approximately 5 billion new DOGE are mined per year. This causes significant inflation, diluting the value of existing coins over time.
Lesser Store of Value
The unlimited supply and rapid inflation make Dogecoin less suitable as a long-term store of value. Contrast this with Bitcoin, which has verifiable scarcity due to its hard cap of 21 million coins.
Concentration Among Top Wallets
The top 20 Dogecoin wallets hold almost 50% of existing coins. This concentration of wealth makes the market more susceptible to manipulation by these "whales." A mass dump of coins by a few big holders could tank the price.
Purely Speculative Asset
Unlike smart contract platforms like Ethereum, Dogecoin has no real utility outside of payments. It exists purely as a speculative asset. Once the hype dies down, it's unclear what would drive lasting demand for Dogecoin.
Quote about Dogecoin investing:
"I know Dogecoin was created as a joke, but there's something so endearing about the Doge community. It reminds me of the early days of Bitcoin when crypto felt more accessible and fun. While the inflationary supply concerns me, I believe there is still money to be made trading the hype cycles around Dogecoin."
What are some other meme cryptocurrencies I can invest in?
Other meme cryptocurrencies, also known as memecoins, have emerged trying to capture the same viral hype that propelled Dogecoin. Here are some popular meme coin alternatives:
Shiba Inu (SHIB)
Modeled after Dogecoin, Shiba Inu uses the same Shiba Inu dog as its mascot. It launched in August 2020 and now has a market cap over $5 billion. SHIB saw a surge in 2021 as speculators looked for "the next Dogecoin."
Samoyedcoin features the fluffy Samoyed dog and aims to be a "fun and friendly" meme coin. Solana founder Anatoly Yakovenko launched SAMO in 2021. It has a market cap under $100 million.
One of the first meme coins, MonaCoin was created in 2014 and features the Mona Lisa wearing sunglasses. This Japan-based token has performed well lately, reaching a market cap over $150 million.
Dogelon Mars (ELON)
Dogelon Mars combines two popular meme trends - Doge and Elon Musk's goal to reach Mars. ELON took off in October 2021 and briefly entered the top 50 cryptos by market cap.
Which Dogecoin investment strategies show the most promise?
Investing in any cryptocurrency comes with risks. That said, here are a couple smart ways to expose your portfolio to Dogecoin:
Dollar Cost Averaging
Given Dogecoin's volatility, dollar cost averaging can help reduce risk. This involves gradually investing a fixed dollar amount, like $100 per month, to smooth out your entry price. Doing this reduces exposure to wild price swings.
Allocating a Small Percentage
Financial advisors suggest limiting crypto to 1-5% of your portfolio. Investing a small portion of your portfolio in Dogecoin provides upside exposure while limiting the downside. Treat Dogecoin as a speculative asset due to the inflationary supply concerns.
Timing the Cycles
For traders, timing the hype cycles around Dogecoin can lead to profits. Dogecoin tends to spike leading up to events like Elon Musk's Saturday Night Live appearance. Savvy traders try to ride these waves.
Exit on the Pumps
One strategy is to buy Dogecoin when it is flat and sell after it spikes on hype. For example, buying at $0.10 and selling at $0.30 would have tripled your investment in 2021. Rinse and repeat with new hype cycles.
Dogecoin stands out from other cryptocurrencies due to its meme-inspired origin story. The Doge community has shown the power of social media hype to drive up prices. However, headwinds like unlimited inflation and minimal development activity create long-term challenges for Dogecoin's viability.
For investors interested in speculative gains, putting a small amount of capital into Dogecoin at opportune times can produce outsized returns. But it's wise to also build a diversified crypto portfolio with assets that provide more fundamental utility. As with any volatile asset, invest in Dogecoin at your own risk and don't put in more money than you can afford to lose.