3 Things Every Crypto Investor Should Know About Dogecoin

11/08/2024 19:53
3 Things Every Crypto Investor Should Know About Dogecoin

Dogecoin may be up 120% for the year, but is it a good investment?

Seemingly out of nowhere, Dogecoin (CRYPTO: DOGE) has been on an extraordinary run in 2024. It's now up 120% for the year and currently ranks as the eighth-largest cryptocurrency, with a nearly $30 billion market cap.

Given that Dogecoin is now outperforming Bitcoin (CRYPTO: BTC) for the year, it's perhaps no surprise that it is beginning to attract attention from crypto investors. But before you invest in Dogecoin, there are three key things you need to know.

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Dogecoin is, first and foremost, a meme coin. That means that its price performance is based on nothing more than hype, buzz, and speculation. As a result, Dogecoin is capable of skyrocketing in price if there's enough hype and buzz. But, at any moment, the hype bubble could collapse, and the price of Dogecoin could fall to zero.

Consider what happened in 2021. In early January, Dogecoin was trading for just $0.01. After a huge hype cycle, Dogecoin exploded in value before hitting $0.74 in May. By July, though, the hype cycle was over, and Dogecoin collapsed to just $0.20. If you are viewing a trading chart for Dogecoin for that time period, it's a vertical line straight up, followed almost immediately by a vertical line straight down.

So, if you're dreaming of getting rich quickly and becoming a Dogecoin millionaire, you need to adjust your expectations. In more than a decade, Dogecoin has never once hit the $1 mark. That brief period in May 2021, when Dogecoin hit a price of $0.74, was the only time it ever came close.

When Dogecoin launched in 2013, it stood alone as the only meme coin. However, since then, there have been many Dogecoin copycats, rivals, and spinoffs. The most obvious rival is Shiba Inu (CRYPTO: SHIB), which has a market cap of about $11 billion. If you use a site like CoinMarketCap, you can easily find a large number of other Dogecoin alternatives, all of them using nearly the same dog mascot.

Dogecoin mascot.

Image source: Getty Images.

Taking a bigger-picture view, the meme coin universe is expanding at a very rapid rate, and Dogecoin is hardly unique anymore. There are literally thousands of new meme coins being created daily. So, it's much harder for Dogecoin to be the top dog.

In terms of overall performance, Dogecoin doesn't even come close to some of the hottest meme coins. For example, the dog-themed meme coin Dogwifhat (CRYPTO: WIF) is up a stunning 1,300% for the year. And you can now find cat-themed meme coins that are up even more. Even if you're OK with the idea of investing in speculative meme coins, you'd still be leaving money on the table by investing in Dogecoin rather than one of these other meme coins.

The one key factor in Dogecoin's favor is the unique relationship that it enjoys with tech billionaire Elon Musk. Ever since 2021, when Elon Musk became known as the "Dogefather," he has been one of the biggest supporters of Dogecoin. Typically, this support occurs via social media, where a simple tweet from him can send the coin higher.

And this could be the reason Dogecoin is seeing a resurgence this year. Starting in January, when buzz started to grow about a potential Dogecoin integration with X (formerly known as Twitter), Musk has been sending stronger and stronger signals that he is fully behind Dogecoin.

Musk's latest move was to propose a new public sector entity -- the Department of Government Efficiency -- that would be known simply as D.O.G.E. So the speculation now is that Dogecoin could continue to soar, given that Musk is slated to play a role in running D.O.G.E.

And that gets us back to the idea that the price performance of Dogecoin is based on nothing more than hype, buzz, and speculation. Dogecoin might do this, and it might do that. But will it? Are you comfortable with the idea of Dogecoin's price zig-zagging on a daily basis based on some new tweet from Musk?

Meme coins are meant to be fun and entertaining, so if you do decide to invest in Dogecoin, treat it as an entertainment expense rather than an investment. While I can see the appeal of meme coins for crypto investors, they have no place in a long-term investment portfolio.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

3 Things Every Crypto Investor Should Know About Dogecoin was originally published by The Motley Fool

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