Updated Feb. 9
Any investor with even a passing interest in cryptocurrency is probably wondering if they should buy Dogecoin now.
It's an understandable question given that DOGE skyrocketed more than 900% in a little more than 24 hours Thursday and at its peak was up more than 1,400% since Jan. 1.
A campaign by a group of Redditor crypto investors is what drove the sudden price move. They want to push the Dogecoin price to $1 from a starting point of about three-fourths of one cent.
The surge temporarily launched Dogecoin into the list of Top 10 cryptocurrencies by market cap.
Shortly afterward Dogecoin price fell back about 46%, but trading remained extremely volatile. Over the next few days it started climbing back up again. By Feb. 8 DOGE was back up to $0.08.
Now, the short answer to the question "should I buy Dogecoin?" is absolutely not.
The long answer involves digging into the background of this whimsical but mostly frivolous cryptocurrency - and why it suddenly is back in the limelight.
Dogecoin is actually one of the oldest cryptocurrencies. Jackson Palmer, product manager with Adobe Inc. (NASDAQ: ADBE) and Billy Markus, a software developer at International Business Machines Corp. (NYSE: IBM) created Dogecoin in 2013 to satirize the early hype around cryptocurrencies.
They based it on Litecoin, itself a fork of Bitcoin. They borrowed a popular meme of the time of a Japanese Shibu Inu dog as the official Doge logo - another choice that reflected the casual nature of the project.
The crypto community had fun with it for a while, then mostly forgot about it. But Dogecoin never died. People continued trading it on crypto exchanges. New developers volunteered to maintain the code.
Then, in 2019, Dogecoin at long last started to draw attention. On April 1 the current developers ran a poll asking Doge fans who they would like to see as the new Doge CEO. It was all a joke; Doge, like Bitcoin, is a decentralized cryptocurrency. No one "runs" it.
Not surprisingly, Tesla, Inc. (NASDAQ: TSLA) CEO Elon Musk won the poll. Musk being Musk, he promptly added "CEO of Dogecoin" to his Twitter bio and tweeted, "Dogecoin rulz." The next day he changed his bio to "retired CEO of Dogecoin."
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The acknowledgement from one of tech's top CEOs pushed the Dogecoin price up 94% in five days.
Last July Dogecoin burst into the news again. In that case, a TikTok challenge aimed to get Dogecoin to $1. The campaign managed a 96% pop in the DOGE price before petering out.
Then GameStop Corp. (NYSE: GME) happened...
Unless you lost your Internet connection this week, you know what happened to GameStop stock. A group of Reddit investors banded together to push up the GameStop stock price. That in turn forced a massive short squeeze on several hedge funds, which made the GME stock price skyrocket.
Other Reddit investors in several crypto-oriented forums (known as subreddits), mainly r/CryptoCurrency and r/SatoshiStreetBets, were inspired by what they saw.
They started a thread called "Dogecoin is the next GME/Bitcoin" and the game was afoot.
The problem they're having, of course, is that no one is shorting Doge. It was the billions of dollars of short interest that forced the price of GameStop to soar. Without that catalyst, it's much harder to push the Dogecoin price.
Another issue with Dogecoin is that it was designed with no cap on the supply. One reason Bitcoin is soaring is that he supply is capped at 21 million, and of that supply 18.6 bitcoins have already been mined.
Already more than 128 billion DOGE have been mined. The more the miners create, the less value each DOGE has, and the harder it is to push the price higher.
That's one reason why it's very unlikely Dogecoin will ever reach the goal of $1 per coin.
Another is something Dogecoin has in common with the GameStop madness: Nothing about the project makes it worth what people are paying for it. Just as GameStop's fundamentals point to a fair price much lower than $400 or $300 or $200, nothing about Dogecoin merits a 900% gain.
Even Markus, Dogecoin's creator, is alarmed.
“The idea of Dogecoin being worth 8 cents is the same as GameStop being worth $325,” Markus told The Wall Street Journal. “It doesn’t make sense. It’s super absurd. The coin design was absurd.”
Doge's only real use case is for online tipping. And just about any cryptocurrency is capable of that.
Sure, Dogecoin a fun crypto and a great meme. But trust me, you don't want to buy Dogecoin right now. Eventually the music will stop and many people will lose a lot of money.
If you're going to invest in cryptocurrencies, you're much better of sticking with Bitcoin, Ethereum and a handful of other top contenders with strong prospects.
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