Should You Invest in Dogecoin?

This year has brought newfound attention to Dogecoin, a cryptocurrency created in 2013 with a market capitalization of around $9 billion — good enough for a spot among the top 20 largest digital currencies in the world.

Although the Dogecoin price is only around 7 cents, the crypto, whose symbol is “DOGE” on exchanges, is nonetheless up around 1,400% so far in 2021. Pronounced “dohj coin,” the virtual currency has exploded onto the scene this year, with a handful of celebrity fans, including Tesla (ticker: TSLA) CEO Elon Musk, hyping it on the way to new all-time highs.

So, what’s the DOGE appeal? Should you invest in Dogecoin? Putting the cryptocurrency in context by looking at its history, comparing it to rivals and examining its improbable rise should help answer that question.

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2021: Year of the Meme

“Dogecoin has been an interesting development for traders,” says Julian Hosp, CEO and co-founder of Cake DeFi, a decentralized finance service letting users loan out cryptocurrency to generate yields. “It’s funny when you think about the fact that Dogecoin was initially created as a joke based off a meme,” Hosp says.

That’s right. Dogecoin’s mascot is a shiba inu dog that became an internet meme in 2013. Unlike Bitcoin, it’s not really in the conversation for being a good store of value, either: Currently, there are more than 129 billion DOGE in existence. There are less than 19 million Bitcoin around, and only 21 million that can ever exist. There’s no cap on the maximum number of Dogecoin units, and billions more are created each year.

That’s some serious dilution.

That massive supply should help explain how a coin trading for roughly 30 times its price a year ago and more than 10 times its price at the beginning of the year could still only be worth about 7 cents.

Of course, it makes sense that a silly token would take off in 2021 — a year in which so-called “meme stocks” like GameStop ( GME), AMC Entertainment ( AMC) and Bed Bath & Beyond ( BBBY) soared on the heels of Reddit-induced hype.

“It really goes to show the power and influence of social media and the ‘meme community’ as a legitimate driving force behind the currency’s adoption and enduring popularity,” Hosp says.

All three of the meme stocks above — GME, AMC and BBBY — are now well below the highs set in the speculative mania that gripped markets in late January and early February.

Investing in Dogecoin is easy; anyone with some spare change and a Robinhood account can participate in the phenomenon. But should you buy Dogecoin? That’s a different story.

[See: What to Know Before Investing in Cryptocurrency]

Trying to Value DOGE

For George Chrysochou, investor and global marketing manager for Financer.com, there are more red flags than DOGE’s meme status alone.

“The project is community-driven since its inception and never received institutional adoption,” Chrysochou says. “It has no official road map nor a white paper. Its founder and leading developers ceased working on the project in 2015, and on several occasions, mentioned that they believe it’s overpriced.”

“Without a proper team, technological development and road map, Dogecoin will likely not be a reliable investment in 2021,” Chrysochou says.

Those are important qualitative factors to consider. And with cryptocurrencies, which don’t have the benefit of earnings expectations or dividend yields, qualitative factors are important. But there are some quantitative ways of estimating a currency’s fair price, including looking at how it’s been historically valued in comparison to other cryptocurrencies like Bitcoin.

The DOGE vs. BTC comparison is best done by pricing the currency in microunits of Bitcoin called satoshis, or sats, which represent a hundred millionth of a Bitcoin.

Chrysochou notes that Dogecoin’s peak value by this metric was in 2014, hitting 272 sats.

“In the 2017 peak, it hit 155 sats. And in 2021, it hit 200 sats, before correcting to approximately 100 sats,” Chrysochou says. “In the most optimistic scenario for this bull cycle, Bitcoin reaches $300,000 and DOGE reaches the 300 sats mark, which is approximately 90 cents.” Dogecoin, worth around 7 cents today, would still have to more than double in value relative to Bitcoin to reach the 90 cent mark. It’s worth about 118 satoshis today.

[READ: The 5 Best Cryptocurrency Trading Sites.]

Proceed With Caution

So, is Dogecoin a good investment?

“As much as we like the attention and growth that these moments bring, we also need to be careful to educate new users on assets’ risks with little to no value or utility. There are over 15,000 projects in crypto,” says Alex Mashinsky, CEO of Celsius Network.

“If you have found yourself interested in cryptocurrency because of Dogecoin, I urge you to keep going because beyond the hype, there is a real revolution happening that demands more attention,” Mashinsky says.

A cryptocurrency with the potential for unrestrained dilution and origins in an internet meme probably isn’t the best bet for anyone other than pure speculators. And celebrity endorsements, even if given ironically by Elon Musk, aren’t enough to make Dogecoin a sound investment either.

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Should You Invest in Dogecoin? originally appeared on usnews.com

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