Image of a Dogecoin by ARTIST Ryzhi, distributed under the CC BY-SA 4.0 licence. Background Image by ipicgr from Pixabay.
Not financial advice. This not meant in any way to disparage the Dogecoin Project.
For reference, Dogecoin opened at 0.0544 USD and closed at 0.0539 USD on the day of publication.
Investors are flocking to the biggest cryptocurrency, bitcoin, for a few reasons. One of them is that it has a fixed supply cap of twenty-one million. Only twenty-one million bitcoin will ever be mined. This makes it a hedge against the necessary, but fiscally worrying, printing of US dollars that is going on. Bitcoin rose from a little below fifty thousand to sixty-one thousand on the news that the one-point-nine trillion stimulus bill had passed. Also, bitcoin is widely respected and actually accepted by some businesses. You can actually buy products, like groceries from Whole Foods, with bitcoin. And finally, bitcoin is starting to catch the interest of institutions. Tesla is buying bitcoin, and so is Microstrategy. Hedge funds and billionaires are starting to dabble and insurance companies like Mass Mutual are getting into the action. More are going to follow.
Unlike bitcoin, dogecoin (market capitalization: seven billion) has nothing going for it except for its meme value, its ability to make some people laugh at its absurdity. It was created in 2013 as a joke, according to CNBC. The name of the coin is a reference to an internet meme, a picture with accompanying words, that features a Shiba Inu dog and a misspelling of the word dog: doge. The cryptocurrency was not meant to be taken too seriously. Instead, the founders (Billy Markus and Jackson Palmer) wished to create a cheap coin for a community of fun-loving internet users. They wanted it for humor, and were kind of running an experiment to see if people would really buy anything. It turned out that people do buy things for no good reason.
Why Dogecoin is Not a Good Investment
Dogecoin does not have any supply cap. This means that it will continue inflating for eternity until your coins are worthless. Sort of. According to ycombinator.com, in 2014 the block reward (the number of dogecoins that are mined every time that miners find a block) was set to ten thousand dogecoin. Since the average block time is around one minute (a tenth of bitcoin) new dogecoins are being minted at a pretty high rate. And there is no halving in the block reward amount, ever. This means that ten thousand coins will be created every minute forever. Infinite inflation. Inflation tends to cause the price of coins to go down over time, something that is not usually looked for in a traditional investment. That is one strike against dogecoin. Further, if the block reward was capped a full year after the coin started, there is always a possibility that that cap could be removed.
Another downside of this comical coin is that it has not yet received widespread recognition as a legitimate asset. Sure, it might get some media attention due to Elon Musk’s tweets on the subject, but nothing more.
Bitcoin has started to be widely accepted as a reserve asset, a store of value. Billionaires like Michael Saylor, Paul Tudor Jones, and of course Elon Musk have bought in. Companies like Tesla and MicroStrategy have invested part of their cash reserves. And, we are in the early stages of acceptance from businesses. Tesla will now allow US customers to buy cars with bitcoin. Some local small stores accept it. The app (application) called Spedn will permit you to buy with bitcoin from major retailers like Whole Foods and Starbucks. And online retailers like Overstock.com also will allow you to use the cryptocurrency to purchase. That was a long list, but it shows how bitcoin is actually useful. Dogecoin is not. No one that I know of accepts dogecoin. Even Tesla doesn’t, and its CEO is a fan.
Possible Doge Use Case
Dogecoin could be used as a micropayment currency. One coin is very cheap, at five and a half cents. This has its psychological benefits because people want to own a whole coin instead of a millionth. Remember, bitcoin can be divided into a hundred million satoshis. Also, the transaction fee is relatively cheap. The average fee is currently eleven cents, according to BitInfoCharts, compared to bitcoin’s twelve dollars. This makes it economical to send small amounts of money as a tip or something like that. But bitcoin can also be sent in small quantities using the lightning network or other protocols that do not use the main blockchain for every transaction. So this is not that big of a win for dogecoin.
Don’t buy dogecoin. Buy bitcoin if you want to get involved in cryptocurrency. Bitcoin is the most established, safest, and most likely to succeed cryptocurrency. Dogecoin is a coin with no real benefit except for humor. Once Elon Musk moves on (which he will) the coin’s price will just go crashing back down into the canyon carved by greed. Or it will inflate into oblivion. Whichever comes first. So, if you want to invest ten dollars in dogecoin just for laughs, by all means go ahead. But take your hard earned savings somewhere else.
Not financial advice. The opinions expressed in this article do not necessary represent those of GoldPundit.