Dogecoin has been the talk of the town for a while. All thanks to the Dogefather — Elon Musk and the loyal Reddit community of the same name. Dogecoin has been encouraged by Snoop Dogg and Mark Cuban. As I write this piece, Dogecoin’s market capitalization is $43 billion. Dogecoin is ranked #5 most popular cryptocurrency.
Dogecoin is a meme-cryptocurrency created by software engineers Billy Markus and Jackson Palmer back in 2013, who later sidelined themselves from Dogecoin.
Elon Musk owned Tesla started accepting Bitcoin as a mode of payment. But a recent tweet by Elon Musk came as a surprise. He told that Tesla was suspending the use of Bitcoin to purchase Tesla, considering the impact cryptocurrency mining has on the environment. In the same tweet, a Twitter user asked Co-founder Billy if he considered the environmental impact while creating Dogecoin. To which he replied, “I made Doge in like two hours I didn’t consider anything.”
If you would have asked me about Dogecoin six months ago. I would have been clueless. Though I knew it exists. The hype around Dogecoin kicked off in 2021. And I too was swayed by the charm of Dogecoin. I was determined to buy Doge after Elon Musk tweeted about his appearance at the SNL.
Dogecoin has had one hell of a run. I too wanted to get my hands dirty. I bought Doge(a stupidly little amount) at $0.35 on April 28. The prices soared to more than $0.75 a day before Elon’s appearance at SNL. But I expected it to even higher. So I waited but later ended up selling it at $0.60 on May 9 and made some quick cash.
Does this mean I’ll never put my money into Doge? I would. Once I understand the trends. But still, I’ll only bet the amount that I can afford to lose. All I earn would be a gift I didn’t expect!
I have been following Dogecoin for more than 3 months now! I have read a lot of mixed opinions about it. Here are 5 things you should consider before putting in your money in Dogecoin:
1. Limited Utility
Unlike Bitcoin, Ethereum, Ripple, and other cryptocurrencies that can be used for payments and transactions, Dogecoin has minimum real-world utility.
Dogecoin has been here since 2013 and to date, only 1,300 mostly obscure global businesses accept payments and tips in Dogecoin.
When you buy Dogecoin you are just sitting and wishing that the next person pays you a premium of what you purchased it at. There is very little utility of Dogecoin outside cryptocurrency exchanges.
2. Continuous Dilution
Dogecoin is a decentralized network that utilizes proof-of-work as a means to validate transactions. For solving complex equations to validate blocks of transactions, cryptocurrency miners are given block rewards of 10,000 Dogecoin.
A block reward is handed every minute which means 600,000 new Dogecoin every hour, 14.4 million new Dogecoin every day. And about 5.26 billion Dogecoin every year.
There is no cap as to how much Dogecoin can be minted. Currently, there are 129.6 billion(as of May 21, 2021) Dogecoins in circulation. And with millions of Dogecoin entering the system every day, the stake of the investors gets diluted.
3. Its Prices are driven by continuous hype
Dogecoin has no real catalyst which is driving its prices. Its prices are driven by constant hype created by Elon Musk’s tweets and its loyal Reddit community.
Elon Musk’s appearance at the Saturday Night Live on May 8 was one of the biggest catalysts. A lot of people anticipated that the price of Dogecoin would jump after his appearance. In fact, Dogecoin touched an all-time high of $0.78 on May 8, just before Elon Musk’s SNL appearance. And the very next day it tanked down to almost $0.5.
4. Transaction Costs
Dogecoin enthusiasts stress the fact that Dogecoin transactions incur fewer costs as compared to Bitcoin and Etherium. But still, these costs are nowhere close to the lowest costs. Tron, Ripple, EOS, Bitcoin Cash, and Litecoin are some of the cryptocurrencies which process transactions on their network for far less.
5. Big Whales
Elon Musk refers to Dogecoin as the people’s currency. But is it? A fact that a hefty share of total Doge circulation sits in a few wallets.
28% of the total Dogecoin are sitting in the wallet of a single big whale. Half of the total circulation sits in just 13 wallets. And two-thirds of the total circulation sits in 104 accounts.
Have you ever considered what would happen if the big whales try and cash out?
In one of his tweets, Elon Musk said that the biggest wallets are cryptocurrency exchanges. Though he isn’t sure about it. If what he believes is true then it might be a sign of relief.
The future of Dogecoin is very uncertain. If the hype around the cryptocurrency persists, keeping people hooked to its charm, Dogecoin might go a long way! But it’s a risky bet!
Your cryptocurrency investment should not be based on hype. Try and understand the fundamentals. Only then invest your hard-earned money. You need to adhere to one rule, “Never invest in something you don’t understand!”
Originally published by the author on Medium.