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What is Dogecoin and is it worth investing in?

What is Dogecoin and is it worth investing in?

$DOGE was created back in 2013, essentially as a joke, believe it or not but not anymore.

Despite the lighthearted spirit with which it was created, the technical side was taken seriously and the functionality and security are very reliable and similar to those of Litecoin.

The initial amount of Dogecoin in circulation was 100 billion tokens, with a price of just a tiny fraction of a cent. It was designed in such a way that the circulating supply is not fixed, but continues to increase by approximately 5 billion coins a year, leading to a modest rate of inflation.

This is fundamentally different to other coins like Bitcoin, which have what is known as a ‘hard cap’ - a fixed amount of coins in circulation (for $BTC this is 21million). These differences are intentional and give us an insight into the intended use of the coins. BTC’s value is derived in part by its scarcity, and it was intended as a store value (although this is still highly debated).
Dogecoin on the other hand, was designed to be actively used and spent, hence the inflation rate. It’s initial use cases were tipping on Reddit and in-game micro transactions.

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Cryptocurrency for the peple
Since 2013 it’s come a very long way, reaching $0.08 back in January 2021 thanks to significant attention from Reddit users, its listing on RobinHood, and Elon Musk’s tweets about it. The timing was perfect, as it tapped into the same emotions and principles that were fueling the $GME (GameStop Corp New) (GameStop) short squeeze. It was cryptocurrency for the people, more accessible, cheaper and less intimidating. Rocket emojis and diamond hands everywhere.

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Can it reach 3$?
When considering the merits of a trade or an investment I always look at the potential returns as well as the risks. So how much higher could Dogecoin go? Well, the current market capitalisation of Dogecoin - meaning the total value of all Dogecoins in circulation - is currently $85B. For context, $ETHEREUM ’s market cap is around 400 billion and Bitcoin’s is just above 1 trillion. I think these are interesting numbers to bear in mind, as it seems extremely unlikely that Dogecoin would be able to overtake ETH or BTC, and we can therefore estimate a maximum upside for Dogecoin. In the event that Dogecoin matches ETH’s current market cap, that would imply a 4.5X increase in Dogecoin’s price from current levels (taking us to around $3).

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Risk Factor
There is absolutely the potential for further upside, but it is also a very high risk investment. The fact that Dogecoin’s price has increased at such a dramatic pace, opens up the door for some very sharp corrections. It’s also worth remembering that it doesn’t have the track record and functionality of other coins like ETH or BTC. It’s value also seems to be heavily dependent on the levels of attention it’s receiving, but these, especially online, change and shift fairly quickly. In my eyes it’s more suited to a short to medium term trade and not as a longer term investment.

If you are new to the Cryptocurrency world and would like to open an account we recommend Cex.io.

Disclaimer. This analysis and forecast are the personal opinions of the author that are not a recommendation to buy or sell cryptocurrency and should not be viewed as an endorsement by techbull.co.uk. Readers should do their own research before investing funds.

Photo by Minh Pham on Unsplash


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