3 Reasons Dogecoin Could Sink — and 1 Reason It May Go to the Moon


Dogecoin (CRYPTO:DOGE) has been a phenomenon in the cryptocurrency world. Its price has soared by more than 4,500% since the beginning of the year and is up nearly 11,000% over the past 12 months.

Even Dogecoin’s biggest competitors in the crypto space haven’t been able to achieve such explosive growth. The price of Bitcoin (CRYPTO:BTC), for example, has increased “only” around 300% over the past year, and Ethereum (CRYPTO:ETH) is up around 860% in the same time period.

However, despite Dogecoin’s meteoric rise, it’s an incredibly risky investment. There are several reasons it may be doomed to fail, and one reason it just may thrive.

Shiba Inu dog against a white background

Image source: Getty Images.

Why Dogecoin may sink

1. It lacks real-world utility right now

In order for any cryptocurrency to succeed over the long term, it needs to have utility within the real world.

Right now, Bitcoin is the most widely accepted cryptocurrency among merchants, and very few sellers accept Dogecoin as a form of payment. Many businesses are still on the fence about cryptocurrency, in general, and those that do adopt it are more likely to accept Bitcoin than Dogecoin.

2. It doesn’t have much of a competitive advantage in the industry

If Dogecoin is going to become widely accepted as a form of payment, it will need to have a competitive advantage. However, there’s not much that sets Dogecoin apart from its competition.

Bitcoin has the most name recognition and first-mover advantage because it’s one of the oldest cryptocurrencies. Because this cryptocurrency gets the most attention, it’s most likely to be accepted by sellers.

Ethereum also has an advantage because its blockchain technology is host to a wide variety of projects. Non-fungible tokens (NFTs), for example, use the Ethereum blockchain, and so does the decentralized finance movement. Ethereum’s native token Ether is also the second most popular cryptocurrency behind Bitcoin.

Dogecoin, on the other hand, doesn’t have much going for it other than its fan following. While some supporters tout Dogecoin’s low transaction fees, there are other cryptocurrencies that have lower fees than Dogecoin. Without a competitive advantage, Dogecoin will have a tough time surviving over the long run.

3. There’s very little barrier to entry in the crypto space

Anyone can create a new cryptocurrency, so the barrier to entry is almost nonexistent. In fact, Dogecoin itself was created by two software engineers as a joke in response to the wild speculation surrounding cryptocurrencies in 2013.

Because Dogecoin is not widely accepted by sellers and doesn’t have much of a competitive advantage in the crypto market, it wouldn’t take much for a new cryptocurrency to overtake it.

Why Dogecoin could make it big

1. It has an enormous following

Despite the fact that Dogecoin has shaky fundamentals, it’s managed to build quite the fan club. And although it has substantially dropped in value over the past few weeks along with many other cryptocurrencies, it’s still up nearly 400% over the past three months.

Dogecoin Price Chart

Dogecoin Price data by YCharts.

Part of the reason Dogecoin has earned such explosive returns is because retail investors have artificially pumped up its price. Celebrity billionaires like Elon Musk and Mark Cuban have also helped fuel Dogecoin’s rise to the top by publicly voicing their support for the cryptocurrency.

These factors point to the fact that Dogecoin is a short-term investment, not a long-term one. However, because Dogecoin now has so much name recognition, it could gradually gain wider acceptance — which may give it a real shot at staying competitive.

Keep in mind that this is a big “if,” and there’s a very good chance Dogecoin won’t be able to keep up with its competitors over the long run. Before you invest, think about how much risk you’re able to tolerate.

While Dogecoin could eventually go to the moon, it’s still a high-risk investment. And for many investors, it’s best to steer clear for now.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.





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