Dogecoin (CRYPTO:DOGE) has been making headlines over the previous few months for its staggering returns. Because the starting of the yr, the value of Dogecoin has soared by practically 7,000% as of this writing. During the last 12 months, it is up by greater than 15,500%.
By comparability, two of the largest names in crypto, Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), have seen their costs enhance by round 300% and 1,000%, respectively, over the previous yr. Whereas many cryptocurrencies have skilled record-breaking returns, Dogecoin is in a league of its personal.
It is arduous to disregard numbers like these. Nonetheless, simply because an funding is incomes sky-high returns does not essentially imply it is a good suggestion to purchase. Dogecoin could also be too good to be true, and there is one big threat to contemplate earlier than you make investments.
A low value is not at all times an excellent factor
Cryptocurrencies like Bitcoin and Ethereum will be the largest gamers within the crypto area, however they’re additionally costly. Again in mid-April when Bitcoin reached its peak, it price round $65,000 per token. Ethereum price simply over $4,000 per token at its peak in mid-Could.
Dogecoin’s file excessive, nonetheless, was simply $0.68. With a value that low, it is probably the most inexpensive investments on the market. And in case you’re on the fence about investing, it may be tempting to purchase Dogecoin just because it is low cost.
That may be an extremely dangerous transfer, although, as a result of inexpensive investments aren’t at all times good investments. If you happen to purchase Dogecoin simply because it is cheaper than its rivals, you might nonetheless find yourself shedding cash.
Whereas all cryptocurrencies are dangerous, Dogecoin is among the most harmful investments. Earlier than you even contemplate shopping for, it is essential to consider how this funding might pan out over time.
Will Dogecoin survive over the long run?
With any funding, a very powerful issue to contemplate is whether or not or not it is prone to expertise long-term development. Lengthy-term investments usually tend to bounce again after downturns and retain a aggressive benefit of their trade.
Cryptocurrencies, typically, are nonetheless extremely speculative. In different phrases, no person is aware of for positive whether or not they’ll nonetheless be round in a couple of years or a long time. Dogecoin, nonetheless, is particularly dangerous as a result of it does not have as a lot utility as its rivals.
To ensure that any cryptocurrency to develop into mainstream, it should have some sort of real-world use. Bitcoin is the most well-liked type of cryptocurrency, and it is the kind retailers are most prepared to just accept. That provides it a big benefit as a result of widespread adoption will likely be key to any cryptocurrency’s success.
Ethereum additionally has real-world utility by its blockchain know-how. The Ethereum blockchain isn’t solely host to its native token, Ether, nevertheless it’s additionally the community utilized by non-fungible tokens (NFTs), decentralized finance, and hundreds of different functions. The Ethereum know-how has the potential to revolutionize quite a lot of industries, and if it succeeds, its cryptocurrency, Ether, has an excellent probability of thriving as properly.
Dogecoin, however, has little or no utility proper now. The few retailers that do settle for crypto usually tend to settle for Bitcoin than Dogecoin, and Dogecoin does not have any main benefits over its rivals.
Will Dogecoin’s value proceed to extend?
After all, regardless of having little or no real-world utility, Dogecoin’s returns have nonetheless outpaced its rivals. Nonetheless, these positive aspects are largely synthetic, they usually probably will not final without end.
A part of the rationale why Dogecoin’s value has soared is as a result of it has been closely promoted on-line. Superstar billionaires like Elon Musk and Mark Cuban have promoted Dogecoin on social media, and retail buyers have invested in droves.
The extra individuals who spend money on an asset, the upper its value turns into. Dogecoin’s run is just like the GameStop saga earlier this yr when buyers pumped up the inventory value solely to dump it shortly after in an try and make a fast buck.
With any funding, if the inventory value does not align with the underlying fundamentals, that is a pink flag. Dogecoin has little utility and no aggressive benefit within the trade, but its value has skyrocketed. That is an indication that this development will not proceed over the long term.
The value of Dogecoin has already taken a flip for the more severe over the previous couple of weeks. And except it develops a technique to keep aggressive, there is a good probability it will not survive over time. So regardless of how cheap it’s, it is nonetheless a harmful funding.
The place do you have to make investments as an alternative?
Whether or not you select to spend money on cryptocurrency or shares, it is at all times a good suggestion to research an investment’s underlying fundamentals. Look past value, and attempt to decide whether or not the funding has real-world utility and a powerful aggressive benefit.
The very best investments are those which are extra prone to expertise long-term development. Dogecoin is probably not the very best funding proper now, however there are many safer choices on the market that also have the potential for greater earnings.
This text represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even considered one of our personal — helps us all assume critically about investing and make selections that assist us develop into smarter, happier, and richer.