Should You Invest in Dogecoin in Summer 2021? The Risks, Rewards and Everything in Between (ANALYSIS)

Last Updated on June 11, 2021

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As the dominant cryptocurrency trading platform, Coinbase, gives away $1.2 million in dogecoin, there has been a peak of interest in this crypto.

The giveaway was a sweepstakes, and people had to buy or sell $100 in DOGE through Coinbase to become eligible. The single grand prize was worth $300,000, and there were a lot other less-grand prizes. The point, of course, is to lure people into trading on Coinbase’s new offering.

From Bitcoin to Dogecoin …

The sweepstakes gambit is an appropriate one, since investing in Dogecoin is by any account a gamble itself. Or, in more polite terms, it is a very speculative play. This is an appropriate time, between the Coinbase-driven excitement and Elon Musk’s back-and-forth enthusiasms, to look at the risks inherent in this asset, and to consider with caution before you jump into the trading pool.

Bitcoin, the matriarch of the crypto family, is itself only 12 years old and, although it has developed a track record and carved out a niche for itself in the investment world, it is still quite risky. Its value has fallen 30 percent since May 12, the day the ubiquitous Mr. Musk tweeted that Tesla was going to stop accepting BTC in payment for its vehicles.

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Elon Musk warned investors before his ‘Saturday Night Live’ debut: Invest with caution! Don’t buy too much, too quickly! Photo credit: Shutterstock.com

Despite the roller coaster charts, there are people who believe that BTC will over time mature into a stable store of value. The reason for this: it was designed to have a ceiling on its quantity. Bitcoins become ever more difficult to create (mine) over time, and mining will cease when there are 21 million in circulation.

It was created at a time when there were a lot of clones of BTC coming on to the market and each was seeking a serious-minded way to differentiate itself from the matriarch. DOGE began as something of a joke, or parody, of that development: it differentiated itself by virtue of a meme of an adorable dog, a Shiba Inu, and by the fact that its potential supply is literally infinite. The one fact most reassuring about BTC is utterly absent from DOGE.

Surging and Risky …

The market value of a crypto, like the value of wheat or Wheaties, is the price at which demand equals supply. Even with agricultural products there is a speculative element within demand. There is always a danger that speculation will take over and render operational demand irrelevant for a brief rise and fall, a “bubble.” The pro side of buying into a bubble is simply “maybe I can buy and sell again before it bursts.” The con side: it’s a trap.

MarketWatch quotes Ben Weiss, the co-founder and CEO of CoinFlip, a large bitcoin ATM concern, saying: “If any part of your brain goes ‘this is a great way to make a quick buck,’ that’s when you should think twice.” If any part of your brain is saying, “$1.2 million is a lot of money, Coinbase is giving away that and I want a piece of it,” then risk is great and you should perhaps think a third time.

Related Risks …

Even aside from bubble-related risk, Dogecoin, like cryptos in general, is vulnerable to hacks. It is also subject to the whims not only of Elon Musk but of a still opaque whale.

But consider speculative bubbles again: even when retail investors do manage to buy in quickly and decide to get out at the first sign of a crunch, and at a level that would amount to a profit: they are often to execute. Experience has shown that crypto platforms in particular are not equipped to deal with a sudden large volume of transactions. The speculators may find themselves strapped in for an unpleasant ride.