Is Dogecoin A Buy Or Should You Stay Away? – Seeking Alpha
Dogecoin (DOGE-USD) was initially created as a joke–a parody cryptocurrency–by software engineers Billy Markus and Jackson Palmer. They reportedly wrote the code for Dogecoin in a few hours and set up a website in early December 2013 with dog memes and comic sans font to market the coin. Within days, the price surged as people adopted Dogecoin. On Christmas Day in 2013, hackers stole millions of Dogecoin from the wallets of many of the early adopters.
In spite of this, investment interest in Dogecoin grew, and the market capitalization steadily increased. By 2018, at the height of the first wave of the cryptocurrency boom, Dogecoin hit $2 billion in market cap, much to the dismay of its creators. Jackson Palmer wrote an opinion piece for Vice where he lamented how the original community, which was known for its generous tipping culture, was quickly displaced by scam artists and get-rich-quick gurus, who perpetrated scam after scam using the currency. From his piece:
As I quickly learned, a passionate community of people throwing around money is like blood in the water to the shark-like scammers and opportunists who, in late 2014, co-opted the Dogecoin community and fleeced its members for millions of dollars.
The story of Dogecoin reminds me of the classic Kurt Vonnegut novel Cat’s Cradle, where a goofy scientist named Felix Hoenniker designs a tool to freeze mud, but his creation ends up freezing all the water in the world by accident.
Fast forward to 2021 and Dogecoin is suddenly more valuable than ever, with Elon Musk–the world’s richest man tweeting to his 46 million+ followers about Dogecoin possibly being the future currency of the earth. Porn star Mia Khalifa is also known as a big proponent of Dogecoin. Naturally, Reddit users began pouring money into Dogecoin, sending the value up more than 8-fold in a matter of days. For serious investors, I’m not sure there’s much to analyze here, other than that people are crazy and that Dogecoin has become an internet joke that people are investing money in. It is possible to make money trading such things on momentum, but I wouldn’t advise anyone to buy and hold.
As of my writing this, it costs approximately 6 cents to buy a Dogecoin, which is about 15x more than it cost 6 months ago.
Everyone I know personally who has speculated on Dogecoin has done so through Robinhood, which offers Dogecoin trading as part of their crypto platform. I checked my BlockFi account for kicks, and I couldn’t buy Dogecoin on there, as it’s not supported. Coinbase doesn’t support Dogecoin either, if they did, then their users would have probably flooded the market with buy orders. The market cap of Dogecoin is now a few billion US dollars, but before the craziness from Musk and Reddit, it was only a few hundred million dollars, with much of the float held by only a few people.
Elon Musk noted this after the fact and encouraged big Dogecoin holders to sell to get more in circulation. It’s not super hard to match the timeline here to the price graph. In early January, Dogecoin probably only had a couple hundred million dollars worth of coins freely available to trade, and celebrities start tweeting about it, where it then circulated on platforms like Reddit, Tiktok, and Youtube. Robinhood’s millions of customers sprung into action, buying Dogecoin on momentum– allowing sellers to name their price.
I would definitively advise conservative investors against buying Dogecoin. It’s up a ton over the last month, and you can only buy it a few places, Robinhood chiefly among them. My guess is that Robinhood traders will get bored of Dogecoin and pile into something else, leaving anyone who wants to hold DOGE in a lurch. Whether you should speculate on Dogecoin (or other altcoins) is another matter, although I think the risk doesn’t outweigh the reward. I personally only invest in Bitcoin (BTC-USD) and the Gemini Dollar (Gemini is how you hold USD cash on BlockFi, they pay 8.6 percent interest on it at the moment).
I get interest from BlockFi on both of these, which makes it a more serious investment for me, with actual cash flow. BlockFi lends my cryptocurrency to market makers, short-sellers, and cryptocurrency holders who want to borrow against their holdings. I don’t worry about my money too much because of the association with Peter Thiel’s VC firm, the Winklevoss twins, and other big names in the tech space.
Additionally, I would expect Bitcoin’s volatility to decline over time as its market cap and adoption continues to increase. With altcoins like Dogecoin, I would worry far more about nefarious things going on with the price action, from pump-and-dumps to market manipulation to the outright security of my coins against hacking. I don’t see where Dogecoin plays much of a role beyond the niche they still have for tipping.
If you’re looking to buy cryptocurrencies, I’d just buy Bitcoin and/or the Gemini Dollar and call it a day. Billy Markus reportedly sold all his Dogecoin in 2015 to buy a Honda Civic, and he co-created the currency. I think that’s all you need to know, despite the myriad celebrities throwing their weight around in Dogecoin.
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Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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May 12, 2022 at 10:49PM