Dogefather Sends Dogecoin to the Moon: Is Crypto Worth the Risk?

Elon Musk is popularly known as Dogefather these days for the support he is giving to Dogecoin. Is Musk’s support enough to invest in Doge? 

| More on:
Road sign warning of a risk ahead

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Elon Musk is known by many names. He’s the “techno king” of Tesla. Most recently, he bestowed upon himself the title of “Dogefather.” I am sure thisDogecoin to the Moon” frenzy will become a popular documentary 10 years from now. Just like 2009 is known for the Financial crisis, and 2020 is known for the pandemic crisis, 2021 will be known for the Dogecoin bubble or trouble. 

Many people are buying Dogecoin for fear of missing out (FOMO). That is not a healthy way of investing. I am not a supporter of Dogecoin but would like to keep a neutral stance. The Dogecoin frenzy could either be one of the biggest economic revolutions or the biggest bubble that left thousands penniless. This 50:50 probability is what makes Dogecoin highly volatile and risky.

What is driving Dogecoin to the moon?

Is a Doge crypto investment worth the risk? To find an answer to this question, you first have to understand why Doge is rising to astronomical levels. I spoke to a cryptocurrency expert at who said that Dogecoin is riding on trading fundamentals. What I learned from the expert’s comments is that crypto trading is evoked by popularity, celebrity endorsements, the backing of the market whales (the top brass), and universal acceptance.

Dogecoin has the backing of the second-richest man Elon Musk. And on Twitter, there is no bigger celebrity than the Shiba Inu dog and his new master Musk. What happens to such promotions? Either they become epics like Star Wars and Avengers, or they become a bubble. 

One thing I can say is, crypto coins are not going anywhere, but they won’t replace the traditional currency either. When digital transactions came in the late 1990s, they went through several regulations and acceptance issues. But because they addressed the need for globalization, they became the new normal after 20 years. 

Now, the biggest roadblock for crypto is acceptance. Many crypto exchanges like Binance and Coinbase are adding Dogecoin to their platform. Doge is also energy-efficient than Bitcoin (TRG data shows Dogecoin consumes 0.12 kilowatt-hours per transaction while Bitcoin consumes 707 KWh). Moreover, Elon Musk is helping Doge developers improve system transaction efficiency. 

Is investing in Doge worth the risk? 

Dogecoin is growing under Dogefather’s care. But is this enough? Some Dogecoin fans say that the coin can cross the US$1 mark if it gets the backing of the world’s richest man Jeff Bezos. They have even posted a petition seeking to get Amazon to accept Dogecoin for payments. 

Amazon is an e-commerce marketplace. An Amazon acceptance could make Dogecoin come closer to an exchange currency. Having Bezos and Musk raise a Dogecoin could build trust and acceptance. 

But all this bubble could burst if Elon Musk backs off and no other market whale supports the coin. That is a risk that can convert your millions to mere hundreds. 

How to balance the risk of a Doge bubble burst 

If Dogecoin is a bubble that will burst when you least expect it, you better have a plan B. Also, don’t forget, Dogecoin gains come under the Canada Revenue Agency (CRA) tax purview, as you can’t buy them through the Tax-Free Savings Account (TFSA). So, invest with caution. 

Don’t put all your money in a highly volatile meme coin. Diversify your portfolio in a way that not more than 5% of your investment is in a speculative instrument like crypto. Invest a significant portion, more than 15%, in a stock like Enbridge (TSX:ENB)(NYSE:ENB) as your backup. The stock has a 26-year history of paying regular, incremental dividends. It has an average dividend yield of 6% and has the potential to grow its dividend per share at an average rate of 5% in the coming years. 

The crypto bubble may burst because of crypto’s limited utility, but oil and natural gas will always be in demand for their usability. Natural gas meets 30% of Ontario’s energy needs. Moreover, it is becoming increasingly difficult to build pipelines, making Enbridge’s existing pipeline infrastructure more valuable. Even if the worst crypto risks materialize, you will have Enbridge’s dividends to fall back on. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Tesla. Tom Gardner owns shares of Tesla and Twitter. The Motley Fool owns shares of and recommends Amazon, Enbridge, Tesla, and Twitter and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.

More on Dividend Stocks

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Undervalued Dividend Stocks to Buy Right Now

Dividend-paying stocks such as Bank of Montreal offers investors the opportunity to generate outsized gains in the next year.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Dividend Investors: 2 Top Oversold TSX Stocks to Buy for Total Returns

RRSP investors can pick up top TSX dividend stocks at cheap prices today and get a shot at some attractive…

Read more »

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »