Dogecoin (DOGE) isn’t exactly lighting the cryptocurrency market on fire so far in 2023. In fact, the “meme” cryptocurrency is down 15.1% in the past 30 days, and it’s also down 10.3% on a year-to-date basis as of Aug. 24.
Volatility seems to be the norm for the cryptocurrency ever since it was rolled out in December 2013. Gyrating prices soon followed, with Dogecoin hitting its lowest price on May 6, 2015 (at $0.0000869), and hitting a peak price of 74 cents in May 2021 thanks to a revival spurred by Tesla Inc. (TSLA) CEO Elon Musk and other famous supporters.
Musk, the crypto’s self-appointed “Dogefather,” has used his social media prowess on several occasions to drive up DOGE prices.
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Still, Dogecoin’s dodgy price performance is especially weak when compared with Bitcoin (BTC), the current king of the cryptocurrency trading market. “Investors have lost money with Dogecoin in 2023,” says Lucas Kiely, chief investment officer at digital wealth platform Yield App. “During that time, Dogecoin’s famous volatility may have seen active traders make some money with the token going as high as 9.5 cents at the beginning of April.”
Volatility is one big reason why Dogecoin is a problematic long-term investment. In comparison, though the original crypto is also known for its volatility, the value of Bitcoin has gained 58.1% in 2023 as of the stock market close on Aug. 24. Bitcoin is now trading above $26,000.
Dogecoin does its business at the bottom of the cryptocurrency food chain. It opened the year at a price of 7 cents and traded at about 6 cents as of Aug. 24.
Here’s what you need to know about investing in Dogecoin, and how its prospects stack up next to cryptocurrency industry stalwarts like Bitcoin and the Ethereum platform’s native crypto, Ether (ETH):
— How does Dogecoin compare to Bitcoin?
— Pros and cons of investing in Dogecoin.
— Future of Dogecoin.
[Read: The History of Bitcoin, the First Cryptocurrency]
How Does Dogecoin Compare to Bitcoin?
Dogecoin’s blockchain uses the same proof-of-work mechanism that Bitcoin uses for adding data, and that’s pretty much where Dogecoin’s similarity to Bitcoin ends. Dogecoin’s mining code was originally copied from the LuckyCoin crypto project, a fork of Litecoin (LTC), which is a fork of Bitcoin, according to Coindesk.com. In 2014, Litecoin and Dogecoin merged their mining efforts, which resulted in Dogecoin producing faster “blocks” than Bitcoin, Coindesk reports.
“Dogecoin and Bitcoin are both cryptocurrencies, but they have distinct origins, use cases and economic adoption,” says Thomas J. Brock, a chartered financial analyst at Annuity.org.
Bitcoin, introduced in 2009, was the original decentralized cryptocurrency and an alternative to traditional fiat currencies and centralized banking systems. “With a market capitalization of about $500 billion (down from nearly $1.3 trillion in November 2021), it is far larger and more widely traded than any other cryptocurrency,” Brock says.
“The average decision-making of users in crypto is to buy what is hot and rapidly growing. Thus, meme coins can increase in value rapidly, which makes it a ‘get rich quick’ trading scenario.” – Iakov Levin, co-founder of Locus Finance
Dogecoin, when it was introduced a decade ago, was meant to be a joke, using the image of a Japanese Shiba Inu “doge” from a viral internet meme. It is now the eighth-ranked cryptocurrency by market capitalization, ahead of Solana (SOL), Polkadot (DOT), Litecoin, Bitcoin Cash (BCH) and Avalanche (AVAX).
“Dogecoin has gained significant popularity and is supported by a passionate community, which includes many wealthy philanthropists, and has a market capitalization of nearly $9 billion,” Brock says. “Yet Dogecoin is commonly viewed as a less serious cryptocurrency than Bitcoin and as a highly speculative investment.”
Bitcoin is considered a long-term investment asset, whereas Dogecoin is something less substantial. “Unlike Bitcoin, meme coins have absolutely no intrinsic value whatsoever and should be viewed as nothing more than a fun bet — no different from throwing down some money on your favorite horse at the Grand National,” Kiely says.
Differences between Dogecoin and Bitcoin also include network effects, monetary policy and decentralization status. “These are tremendous differences, and they are why Bitcoin’s dominance ratio, or the ratio of Bitcoin’s market cap to that of all alternative cryptocurrencies, remains around the 50% mark,” says Dave Birnbaum, vice president and director of product at Coinbits in Nashville, Tennessee.
Bitcoin is also used by millions globally, its supply cap is credibly set so users can be confident only 21 million Bitcoins will ever exist, and its decentralized governance means no single actor or group can change its monetary policy.
“Dogecoin is the opposite — it has no supply cap, over 100 billion Dogecoins in circulation, and a foundation responsible for its development that could likely change its monetary policy,” Birnbaum says.
[READ: Bitcoin vs. Ethereum: Which Is the Better Buy?]
Pros and Cons of Investing in Dogecoin
Like any asset class, Dogecoin has upsides and downsides that investors must consider:
Pros of Investing in Dogecoin
Fun factor. For some, Dogecoin is a fun investment vehicle that appears to have some entertainment value for the non-critical portion of their long-term investment portfolios.
“The pros of investing in Dogecoin include fun, and that’s it,” Kiely says. “Meme coins have absolutely no utility and exist only to generate quick cash for clever programmers, seasoned volatility traders, and of course fervor among crypto Twitter users and the media.”
Potentially vigorous short-term value. Meme coins tend to increase in price in the short term virally. “For example, you might find value in Dogecoins in the middle of a bullish rally for crypto,” says Iakov Levin, co-founder of Locus Finance, a decentralized asset management platform. That’s due to two factors, Levin says:
— There are a lot of new retail investors.
— These investors likely earned their first wealth in crypto, usually from BTC and ETH going up in price.
“The average decision-making of users in crypto is to buy what is hot and rapidly growing,” Levin says. “Thus, meme coins can increase in value rapidly, which makes it a ‘get rich quick’ trading scenario.”
Cons of Investing in Dogecoin
Risk of loss. The potential for loss is all too real. Basically, the drawbacks of investing in Dogecoin include potentially losing all of your money.
“As we have seen with numerous meme coins over the years, and especially this year with coins like PEPE and BALD, profits are scarce,” Kiely adds. “When it comes to meme coins, only the founders and maybe a handful of clever traders make some money. Everybody else loses spectacularly in a very short period of time.”
That makes investment risk a real problem with Dogecoin.
Potential lack of decentralization. “Like any alternative cryptocurrency, owning Dogecoin is rife with risk,” Birnbaum says. “There is no cap on Dogecoin’s supply, and its foundation — or the body responsible for ‘supporting it through development and advocacy’ — implies that its governance might not be decentralized.”
He adds, “A lack of decentralization would introduce an additional risk associated with certain actors being able to change Dogecoin at will and to their benefit.”
Future of Dogecoin
The primary problem with Dogecoin is getting experienced investors to take the meme coin seriously. Given its low price level over the long haul, that’s an uphill climb.
“Serious digital asset investors are looking to genuine projects like Bitcoin and Ethereum, among many more quality companies and initiatives in the blockchain space that are concerned with building the future of finance,” Kiely says. “Dogecoin and its meme coin comrades are the light relief on the side of that.”
Aside from losing money, a major downside to Dogecoin is that people unfamiliar with the space “read only about these silly tokens and believe they are representative of the whole sector,” Kiely says. “That’s a real shame that leads to misconceptions and missed opportunities in the large cryptocurrency sector.”
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Should You Invest in Dogecoin (DOGE)? originally appeared on usnews.com
Update 08/25/23: This story was previously published at an earlier date and has been updated with new information.
