OnlyFunds Investment Adviser Staff
Is Dogecoin a Good Investment?
Updated: Jul 10, 2022
Many supply. Such inflationary. Wow! YOLO'ing into Dogecoin may be a popular choice to have fun on some discount brokerage sites, but we don't recommend it for any of our clients. Scroll down to find out why!
1. It doesn't have any practical uses.
While there are some exciting and potentially revolutionary projects in the cryptocurrency space there's virtually no real-world use for DOGE tokens. According to online business directory Cryptwerk, only about 1,300 businesses accept payment or tips in Dogecoin.
Considering the U.S. has more than 32 million businesses by itself and there are an estimated 582 million entrepreneurs worldwide. The point is: Dogecoin is a novelty "currency" that has virtually no use, and there are other projects that are competing in the "fast payments" space with faster developers, more sound economics, and a lot more support.
2. There is an infinite amount of DOGE.
When people dedicate their computers to helping cryptocurrency networks function, a process known as "mining", they get a reward, paid out in that currency. For example, a Bitcoin miner may get paid out at regular intervals, called "blocks" for having computers run the bitcoin mining process every day.
Here's where things get interesting: A block reward is handed out every minute. That's 600,000 new Dogecoin every hour, 14.4 million new tokens every day, and close to 5.26 billion new Dogecoin being virtually minted every year.
Unlike Bitcoin there's no upper limit on how many Dogecoin can be created, and there is no slowing down of these rewards for miners. With around 150 billion Dogecoin already in supply, as of this past weekend, investors are constantly seeing the value of their holdings diluted with each new block reward. It's simple supply and demand: even if there is some demand for buying Dogecoins, there is an infinite supply, meaning the price will go to $0.00 over the long run.
3. The founder of Doge has no Dogecoin, and thinks his joke has gone too far.
If all of this is still not enough to convince you that Dogecoin isn't a great investment, listen to what someone who might know a thing or two about Dogecoin had to say: codeveloper Billy Markus. Markus, in an interview with The Wall Street Journal following Dogecoin's ascent to $0.08 earlier this year, said:
The Idea of Dogecoin being worth 8 cents is the same as GameStop being worth $325. It doesn't make sense. It's super absurd. The coin design was absurd.
Dogecoin may have been a successful meme, but what it has become scares even the person who created it. Yikes.
4. No fundamentals, just misery in the end.
The final reason to be highly skeptical of Dogecoin is the lack of true any true fundamental drivers of its value. For example, Tesla buying $1.5 billion in Bitcoin and announcing it would accept payment in Bitcoin stands out as a real-world catalyst. Dogecoin, however, relies on social media hype, often driven by figures known for their less-than-financially-sound jokes - looking at you, Elon Musk.
Since the vast majority of Dogecoin is owned by retail investors and not institutions, emotions have also played a key role. The thing about emotions is that they're short term in nature and can shift at any moment.
So how does the price rise? Two concepts come to mind: the first is FOMO. Need we say more? Fear of missing out drives a lot of investing decisions these days. While "momentum trading" - or following the crowd - is often a strategy that can work in the real world, Doge's infinite supply and lack of fundamentals likely doom it.
The second concept: the "greater fool" theory. Here it means dealing with people trading off a financial hot-potato, where each person that sells isn't relying on good news or solid use cases to drive the price higher, they're relying on someone with FOMO to buy their DOGE at a higher price than they bought it. In short, its a game of musical chairs with a huge chance of losing money if the chair gets pulled out from under you.
Ok fun ruiner, what should I invest in then?
Call us biased, but we're a big fan of Modern Portfolio theory - a fancy way of saying that you should have a diverse portfolio of financial assets, rebalance them regularly, and be prepared for any financial environment. We're also big on good investing habits, like saving part of your paycheck each month to slowly enter the market over time. If that sounds like a lot to keep track of, you're in luck: if you open an account with us, we handle all of that - automatically!