The meme-inspired cryptocurrency Dogecoin ( DOGE -12.50% ), whose mascot is the Shiba Inu dog breed, took the crypto investing world by storm earlier this year, running up from half a penny all the way to around $0.70 in May. Currently, Dogecoin, which has the 10th largest market cap of any cryptocurrency, is priced around $0.20. There has been much debate over whether Dogecoin is a legitimate investment. Let’s look at the bull and bear cases.
The bullish take: Potential to invest for a few dollars
Adria Cimino: Dogecoin started as a joke. Co-founder Jackson Palmer tweeted about investing in the then-nonexistent Dogecoin to poke fun at the number of cryptos popping up here and there. When the idea of Dogecoin gathered momentum, though, Palmer decided to make the crypto a reality.
That was back in 2013. And since then, Dogecoin’s gains are no joke. Just this year, the coin has climbed more than 3,500%.
Image source: Getty Images.
So, why would someone invest in such a cryptocurrency? It’s important to note that it trades at well under a dollar a token. That means it’s easy to invest in this crypto player for only a few dollars, and if Dogecoin eventually declines, your losses would be extremely limited.
Now, let’s talk potential for gains. Considering the unlimited supply of Dogecoin, I don’t expect its value to reach extraordinary levels. But even if it makes it to a few dollars a share, many investors could win big.
Dogecoin doesn’t have the real-world utility of bigger competitors like Ethereum ( ETH -5.05% ) right now. But if it evolves into the realm of smart contracts (contracts that self-execute when certain conditions are met), it could become a significant player. Through these contracts, blockchains develop decentralized applications (dApps). These dApps are transforming how business is done in finance and other industries.
Dogecoin already has become the world’s 10th-biggest crypto by market cap. And that’s just through its popularity as a meme coin and as it’s gained some traction as a payment method. For example, the NBA basketball team the Dallas Mavericks accept Dogecoin. And most recently, AMC Entertainment Holdings said it will soon start accepting Dogecoin for payment.
Of course, Dogecoin remains very high-risk. It shouldn’t be the backbone of your crypto investment strategy. But it might find its place as a small part of a well-balanced crypto portfolio.
The bearish take: No solid fundamentals
Bram Berkowitz: I admit that I got in on Dogecoin somewhat early in the run, but only put a little in for entertainment purposes and have already sold it. I never really considered Dogecoin to be a strong long-term investment because of the lack of fundamentals.
For one, Dogecoin seems to have only the very basic capabilities as a cryptocurrency in that it can help people move money on the internet without a bank account. But there are now more than 6,500 cryptocurrencies, and most of them can do this, too. There is no real-world utility for Dogecoin and no first-mover advantage, either.
The other thing is, there is no supply-and-demand dynamic associated with Dogecoin. People can mine an unlimited supply, and there is currently around $132 billion worth in circulation. One of the big reasons investors like Bitcoin ( BTC -10.51% ) is because they view it as a possible hedge against inflation, partly because the amount of tokens that can be mined is capped at 21 million, so there is a finite amount. And it was reported earlier this year that a very small amount of people own most of the market cap of Doge, making the token highly susceptible to volatility.
Lastly, I really think Dogecoin benefited from the meme investing this year that also took hold of various other cryptocurrencies and stocks. Not long after Dogecoin’s impressive run, investors latched on to Shiba Inu ( SHIB -7.65% ), which seems to be a play on Dogecoin’s popularity given its name. Shiba Inu went on another parabolic run and is not too far behind Dogecoin’s market cap. It really seems like Shiba Inu has stolen Dogecoin’s fire for now, and I’m sure another digital token will come along and steal Shiba’s fire eventually. Dogecoin, in my opinion, is a short-term fad that is bound to fade.
Conclusion
Ultimately, it’s OK to invest a little money in Dogecoin for fun. It does have some notoriety at this point, and there’s always the chance that the next Elon Musk tweet about it could result in some nice quick gains.
But under no circumstances do we recommend dedicating anything over a very small amount of your crypto portfolio to Dogecoin. It’s likely to be highly volatile and lacks the fundamentals of a good cryptocurrency investment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
