DOGE: Down 68% From Record Highs. Should You Buy Dogecoin Today?

Dogecoin remains one of the most popular cryptocurrencies in the world. But should it be part of your portfolio?

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One of the most popular cryptocurrencies in the world, Dogecoin, has lost significant momentum in the second half of 2021. After touching a record high of $0.7376 in May 2021, the price of one DOGE token is currently trading at $0.24, at the time of writing. Despite the recent pullback, Dogecoin is the 10th-largest cryptocurrency in the world with a market cap of $31.62 billion.

Let’s see if it’s time to add this cryptocurrency to your portfolio right now.

The bull case for Dogecoin

Dogecoin was launched in 2013, which means it predates other digital assets, including Ethereum, Cardano, and Solana. Though initially launched as a joke, Dogecoin is accepted by 1,900 merchants all over the world, which is not too bad given its limited utility. In fact, Dogecoin’s first-mover advantage and brand recognition allowed the cryptocurrency to gain an astonishing 28,000% between October 2020 and May 2021.

Dogecoin’s rising popularity has enabled the cryptocurrency to establish a strong community — an extremely important criterion for meme coins that thrive on hype and not on fundamentals. While Bitcoin is followed by 2.7 million people on Coinmarketcap, Dogecoin has 1.3 million followers. Further, Dogecoin has been regularly endorsed by celebrities including Elon Musk, Mark Cuban, and Snoop Dogg.

There have been questions raised about Dogecoin’s inflationary status, as there is no limit on the amount of DOGE tokens that can be mined. As its supply is uncapped, the demand for Dogecoin needs to exceed its inflation rate. However, the number of DOGE tokens that can be created is limited to five billion each year. Currently, there are 131.5 billion DOGE tokens in circulation, which suggests the inflation rate is less than 4% for 2021. This rate should decrease in the future, as the denominator continues to move higher.

The bear case for Dogecoin

Dogecoin has been extremely volatile in the last 12 months, which makes it a highly speculative asset. Due to rampant price fluctuations, merchants might be hesitant to accept the token as a form of payment instead of fiat currencies. Stablecoins such as Tether, which is pegged to the U.S. dollar, is a much safer bet for business owners compared to Dogecoin.

Further, Dogecoin is a standalone blockchain, unlike Shiba Inu, which runs on the Ethereum network. So, transactions are validated via a PoW (proof-of-work) mechanism, which is cost intensive, as it requires users to solve complex computational problems in order to mint additional coins. The Dogecoin blockchain has no utility and does not allow users to create autonomous programs known as dApps, or decentralized applications, on its network.

The verdict

Similar to most other cryptocurrencies, investing in Dogecoin carries significant risks. But if Dogecoin can reclaim record highs, investors could derive triple-digit gains in the future. You can purchase a small stake in DOGE and add utility-based tokens such as Ethereum or Solana to create a diversified cryptocurrency portfolio.

Dogecoin’s risk profile remains elevated but may also be a top speculative bet for investors with a large risk appetite.

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.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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