Dogecoin’s rise to fame deserves closer analysis
Cryptocurrencies have their shortfalls, and few show those shortfalls as vividly as the now famous Dogecoin (DOGE-USD). Here’s why we wouldn’t invest in DOGE.
We’ve written about Dogecoin before and more often than not, it was to enjoy the extent to which this was a fun asset to speculate over—not one to invest in. We’ve also looked into why we thought DOGE was liable to make such speculative and sporadic market movements, and why ultimately, we thought it was doomed to crash.
The simple truth is that the Dogecoin party ended shortly after that warning. Dogecoin crashed from about $0.74 to $0.20 at the end of July, marking a 73% decline in value. But as we’ve written in the past, being a financial analyst isn’t just about making the right predictions. A lot of your value as an investor comes from your method and how you analyze the data in the first place.
In the words of another respected advisor:
“If you are an investor with an investment policy toward pure speculation, have a very high-risk tolerance, are ready to lose potentially all your money and ignore the fundamentals, focusing only on the latest meme “assets” and even social media investing based on dubious picks, then Dogecoin may be something to consider speculating with… But at some point, this trend will end for Dogecoin, and my guess is it will end very badly.”
We would say that even at $0.20, DOGE remains too pricey. In fact, we’d say even at zero, this would still be too much for this cryptocurrency. Here’s three reasons why.
It’s speculation
Let’s get the most obvious point out of the way. Elon Musk supported it, then changed his mind. Social media pushed the coin to a price that was not only far beyond its real value, but created a culture of hype around DOGE, suggesting it was the next true competitor in this market.
There’s a difference between investing and speculation. Investing requires a significant amount of additional research than speculation demands, and speculation is what pushed DOGE above and beyond. There was no logical reason why anybody should have been buying other than hope that it would simply sell for more.
Look, if you come across a digital asset that appreciates in value in a short space of time, it makes sense to ride the wave. But when normality returned to the cryptocurrency market, Dogecoin crashed. Speculating on this asset was nothing more than wishful thinking.
The Business Case
Dogecoin describes itself as “an open-source peer-to-peer digital currency, favored by Shiba Inus worldwide. Dogecoin sets itself apart from other digital currencies with an amazing, vibrant community made up of friendly folks just like you.”
Lovely phrasing, but true? Absolutely not. Dogecoin is neither a revolutionary cryptocurrency, nor one with a compelling use case underpinning it. In fact, what is it precisely that it benefits so much from? Ultimately, Dogecoin relies on itself being a unique innovation—only it isn’t. Ultimately, the business case for Dogecoin is very minimal, and we don’t favor this as an asset to invest in.
Why Should Developers Bother?
Dogecoin also lists itself as “free software. If you are a software developer, you can use your shiba powers to do good and improve Dogecoin. You can even build amazing new services or software that use Dogecoin.”
We believe that there will be no long-term enthusiasm for this. The coin has no intrinsic value so we don’t see why developers should invest hard-earned money into something that offers little against its competitors. We doubt there will even be money to make.
Dogecoin: A Vital Lesson for Investors
Investing requires that you make mistakes. As in life, mistakes are what aspiring investors learn and grow from. Those investors who were drawn to Dogecoin through social media and hype will have learnt valuable lessons.
The bubble we predicted has now come around and those who were over-extended are now feeling the consequences. There is little investment case for Dogecoin and we wouldn’t advise investors to invest in this coin.
Let us put it this way. Imagine you have traveled to an exotic island for the first time. You’re on a beautiful beach and you’re looking forward to swimming. As you enter the shallows, a person approaches to welcome you to the beautiful locale. They tell you that further from shore, the beach has strong currents and there is a high risk of sharks. What you choose to do after this is up to you, but would you venture towards the currents? We advise not.
We’re recommending investors coin stay clear from Dogecoin for the reasons we’ve listed above. There may well be other altcoins to invest in, but this isn’t one.
