For years, dogecoin was a joke cryptocurrency that traded for less than a penny outside the cryptocurrency world. However, the Shiba Inu-themed coin had found its stride — and its spot on powerful cryptocurrency trading platforms — by spring 2021.
Eight cryptocurrency platforms currently offer dogecoin: Gemini, SoFi Active Investing, Webull, Robinhood, eToro, Coinbase, Binance, and CEX.IO. These platforms made it easier to trade the coin, and by May 2021, it had reached a market capitalization of $88.8 billion and a price of more than 70 cents.
To put that in perspective, at its peak in May, dogecoin would have been among the S&P 500’s top 100 firms in terms of market capitalization. Its value has since dropped dramatically, but it remains among the top 15 cryptocurrencies in market capitalization.
But don’t just buy into the hype. Before adding dogecoin to your portfolio, know what you’re getting into. Before you purchase dogecoin, think about these three things.
What Gives Dogecoin Value?
To comprehend what gives a cryptocurrency its value, it’s necessary to grasp the fundamentals of blockchain technology and how altcoins like dogecoin came to be.
For perspective, Bitcoin was developed to be a new, better way to record financial transactions so that investors may see value in it. Ethereum’s capacity to run smart contracts — agreements that execute automatically if specific criteria are met — is frequently mentioned by investors as the network’s key value driver. Hundreds of different cryptocurrencies and tokens have been generated, most of which aim to improve on an existing currency or provide a new, blockchain-based solution to a current issue.
Why was Dogecoin Created and What Gives it Value?
The co-founder of dogecoin, Billy Markus, stated that he created the cryptocurrency as a joke to add fun, love, and giving to the crypto community. Dogecoin supporters frequently utilize social media to reference some of the coin’s guiding principles, such as charity, fundraising, peer support, cryptocurrency advocacy, and meme creation. And the Dogecoin community has followed suit: The Dogecoin Foundation raised more than $50,000 in dogecoin to help with the Kenyan drinking water issue in 2014, and a group of dogecoin holders raised $25,000 in dogecoin to help send the Jamaican bobsled squad to the 2014 Olympics in the same year.
But maybe a vital message of the project is best summed up by a famous dogecoin Reddit rallying cry, which also happens to be an acronym for DOGE: “Do Only Good Everyday.”
As a result, dogecoin serves no practical function other than to promote good in the world, and it was not created to benefit any individual or business. In terms of US dollars, the currency’s worth is entirely dependent on the market because there is no legitimate way to value it in any traditional sense. In other words, at any given time, dogecoin will be worth whatever someone else is willing to pay for it. While this is a part of any asset traded on the secondary market, dogecoin’s price is purely determined by market forces due to its lack of traditional value.
How Does Dogecoin Fit in your Portfolio?
All cryptocurrencies are still considered alternative investments due to their volatility, emergent status, and lack of regulation. According to investment rules of thumb, they should make up a tiny amount of your investment portfolio. Traditional counsel is that you try to put money into tax-advantaged retirement funds like an IRA or, if available, a workplace 401(k) (k). You might want to open a supplemental taxable brokerage account if you’re currently contributing to or maxing out one of these accounts.
What can you put your money into with these accounts? Investing in highly diversified, low-cost index funds with these accounts is a great place to start. They’re not as exciting as dogecoin — don’t expect 13,000 percent gains — but they’re a lot less volatile and more consistent long-term returns. The yearly average of the S&P 500 over the last several decades has been around 10%.
Suppose you’ve already built a diversified portfolio of low-cost index funds through tax-advantaged or taxable brokerage accounts and plan to contribute to these accounts regularly. In that case, you might be in a position to add alternative investments like cryptocurrencies to your portfolio, but make sure you fully understand the risks.
How much Dogecoin can you Afford?
To figure out how much to invest in Dogecoin, consider: Would you still be financially sound if you lost your entire investment tomorrow? You’d be disappointed, but you’d still have your core portfolio of diverse, long-term assets and enough cash to cover your expenses.
If you said no, you’re probably putting more money into it than you can afford to lose. You should save money for alternative investments only after you’ve paid off high-interest debt, amassed a substantial cash reserve, and established a well-diversified portfolio.
Where to Buy Dogecoin?
Dogecoin may be found on a variety of cryptocurrency exchanges. Check if the platform allows you to access a digital wallet, implying you may transfer and receive dogecoin, just like any other cryptocurrency. Some brokers may only allow you to buy and sell dogecoin in US dollars.
