3 reasons to buy Dogecoin
Do you remember the class joker? You know, the guy sitting at the back of the room with his feet on the desk, blowing gum and constantly visiting the principal’s office? The cryptocurrency world has its version of this.
Dogecoin (CRYPTO: DOGE) was among the first “memes tokens” and was created as a joke by its founders Billy Markus and Jackson Palmer in 2013. It has flourished for two main reasons.
First, it was early for the game. Investors had fewer options back then, and just being a part of the crypto environment meant a greater sense of purpose. Dogecoin’s position as a prank invited enthusiasts to become a part of Dogecoin for reasons other than money.
Second, his symbol was an image of a dog. Enough said.
The story behind Dogecoin? Suffice it to say, the founders packaged and sold their stake at one of DOGE’s first gatherings, believing the madness had gone too far.
Of course, with recent celebrity endorsement (namely, Tesla CEO Elon Musk), Dogecoin has gone from a token of little real-world significance to a top 10 cryptocurrency by market cap. .
Let’s take a look at three reasons why Dogecoin can be considered a reasonable, albeit speculative investment today, but also offer a few caveats.
1. The popularity of Dogecoin makes it so
Back to the high school analogy: If there was a crypto popularity contest, Dogecoin’s meme status would make it a contender.
The sub-Reddit Dogecoin has 2.2 million “followers” (Shiba Inu followers) on its page. Some of the most popular names that have endorsed Dogecoin include Musk and hip-hop artist Snoop Dogg.
Given the speculative nature of cryptocurrency, popularity alone is essential. When it comes to valuation, Dogecoin is worth what it’s worth because others believe the token will rise in value. Those who invest in DOGE are also betting on more headlines of the celebrity hype.
Of course, the fact that Dogecoin is so popular at present it’s great. The return DOGE has provided to investors in the past year alone is 9,000%.
However, investors are taking risks by owning a token that has skyrocketed so quickly on the basis of popularity alone. If another cryptocurrency catches the majority of investor attention, Dogecoin could be sidelined.
2. Dogecoin is great for crypto newbies
Dogecoin’s mountainous volatility over the past year has deterred some investors. Indeed, investing a significant amount of money in something that can skyrocket or collapse in a short period of time requires an iron stomach and the right mindset.
However, investors looking to get into the crypto game may want to consider Dogecoin as a great option.
Well, holding Dogecoin for an extended period of time can give investors some insight into what crypto investing is. Investing in cryptocurrencies requires the firm belief that a technological transformation is underway and that crypto will soon be remaking the world as we know it. Still, the ups and downs brought on by fickle feeling are quite normal. Investors must be prepared to weather storms as they arise.
I consider Dogecoin to be one of the most speculative and therefore volatile cryptocurrencies. As a result, those looking to get an amazing spin may want to put a few bucks to work in Dogecoin. This cryptocurrency will undoubtedly provide a roller coaster ride that is fun at times and scary at others.
Of course, investors should only invest what they are prepared to lose in such speculative assets.
3. The positioning of Dogecoin on the market is unique
I think Dogecoin’s mining model, its inflationary status, and its links to Litecoin (CRYPTO: LTC) are all intriguing. These factors make Dogecoin unique and an intriguing investment for many crypto enthusiasts.
Because it was an early entrant into crypto, Dogecoin’s mining model is based on proof of work. As Bitcoin (CRYPTO: BTC), this means that complex computational issues must be solved to validate transactions through the Dogecoin blockchain.
However, given concerns about the environmental impact of crypto mining, experts predict that Dogecoin will switch to a proof-of-stake validation model, in which coin holders validate transactions. Such a decision may be of interest to investors who are hesitant about old cryptocurrencies.
That said, Dogecoin would use significantly less energy per transaction than Bitcoin – less than 2%. Those who look at cryptocurrencies from a sustainability perspective should like this.
Additionally, Dogecoin’s blockchain is verified through miners using the Scrypt algorithm, the same one used to mine Litecoin, a Bitcoin spin-off. Those who are bullish on both Dogecoin and Litecoin have reason to love this feature, which is not so common in the crypto mining world.
Finally, Dogecoin’s inflationary status has caused concern among some investors in the past. Buying something that naturally inflates over time (its supply isn’t capped like Bitcoin’s) requires demand to exceed the natural rate of inflation. If people start dropping out of Dogecoin en masse or switching to the next most popular cryptocurrency, Dogecoin prices could drop very quickly.
That said, the fact that there are only 5 billion new DOGE tokens created each year means that investors can accurately estimate the rate of inflation over time. Considering DOGE’s current supply of around 131.5 billion DOGE, that inflation rate is around 3.8% this year. In addition, this inflation rate will decrease over time as the denominator grows.
Getting an idea of the capital inflows into Dogecoin can allow investors to analyze the probabilities of price appreciation. For those looking for an intellectual puzzle, Dogecoin certainly obliges.
Dogecoin is one of the most speculative cryptocurrencies on the market. Sure, it’s making the headlines right now, but the headlines have led to outperformance in recent years.
However, investors should be aware of the risks. Buying a small stake in DOGE along with other cryptocurrencies in a well-diversified portfolio is great. However, it is not advisable to go all the way.
That said, this token has upside potential. For those who are able to handle volatility, this cryptocurrency may be worth a look.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.