What Is Dogecoin? Is DOGE A Good Investment?

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Coinrule

8 min readMay 6, 2021

The crypto market never stops surprising. How many of your friends have recently mentioned Dogecoin? How many have been bragging about the profit they managed to lock thanks to the parabolic price surge of DOGE? For all those that are still puzzled about what Dogecoin is, or if you are wondering if this is a good time to buy Dogecoin, this article will make things clear.

Dogecoin is a cryptocurrency very similar to Bitcoin, in a sense, but with some essential differentiating elements. Its origins can be traced back to December 2013 when two software engineers, Billy Markus and Jackson Palmer, launched the coin to create an instant, fun, and accessible payment system.

They aimed to reach a broader demographic target than Bitcoin. Unfortunately, the coin’s growth was initially slower than expected, despite gaining more than 30,000 new users in the first 24 hours after its release.

With growing cryptocurrencies’ adoption among market participants strengthened the perception that Dogecoin was actually a thing despite being a funny coin. As of today, Dogecoin sits at a market cap of approximately $78 Billion.

The meme culture

We live in a world dominated by social networks. There is no question about it. Every day we all get exposed to memes, and the temptation to share them with our networks is strong. Memes become viral, and they can even enforce new forms of herd mentality.

The meme culture around cryptocurrency is highly visible, especially on Twitter and Reddit. Apart from the interest traders and investors can have in this ever-evolving environment, the space is definitely fun and entertaining per-se.

DOGE equals $1 it’s a meme that may become reality

Dogecoin is the apex of this phenomenon. The creators built this cryptocurrency with the very purpose of making its meme-identity the core value proposition. And that worked pretty well, as no other similar joke-coin managed to survive so long across multiple bull and bear market cycles.

The coin made some brief mainstream appearances in the past years. For example, the community managed to raise money to sponsor a NASCAR race car and the Jamaican bobsled team to the 2014 Winter Olympics in Sochi.

Nowadays, Dogecoin has become something much bigger. Teenagers share TikTok videos shilling the coin. Millennials can easily buy Dogecoin on most of the largest crypto exchanges and even on more traditional Trading apps like Robinhood or eToro.

Everybody is now talking about Dogecoin predicting the price to reach $1. That was just a wild idea, at the very least, just a few months ago, but the hype is now translating into a self-fulfilling prophecy as days pass by.

The Elon Effect

What is even more interesting is that not only are teenagers worldwide supporting Dogecoin, but prominent and influencing personalities are now publicly tweeting and talking about DOGE. Of course, the most famous is Elon Musk, one of the most active actors in this meme-saga. And when you consider that Musk alone has over 50 mln followers on Twitter, then it’s easy to understand the magnitude of public visibility that DOGE achieved.

Musk has always enjoyed joking around using his Twitter account. It’s famous when he tweeted that Tesla was about to go private, with an immediate response of the stock market that reacted significantly to the news, only to find out that there was nothing serious backing the tweet. The SEC fined $20 mln Elon in 2018 for that tweet, and he even sarcastically replied that it was “worth it.”

These days, talking about DOGE and supporting his trend to $1 is not taboo anymore. As a result, the list of Dogecoin’s endorsers is long. That includes legendary investors like Mike Novogratz, who recently said that the coin’s “rally is a ‘middle finger’ to the financial system.” But Dogecoin received support even from people generally not associated with investment advice, like Snoop Dogg, which could not resist the temptation to join this meme-mania.

Dogecoin as an Altcoin indicator

Analysis of previous altcoin cycles shows that Dogecoin is a solid indicator for Altcoin cycles. An example would be on July 7 of last year; Doge increased in value by 73% in a short period of 36 hours. Despite the effect dying quickly, Altcoins did begin to surge in value. A couple of weeks later, the Altcoin market capitalization rose from $105 Billion to $130 Billion, a 24% increase in a mere ten days.

DOGE price compared to the Altcoin market

Another case would be at the beginning of 2021, when Doge jumped a whopping 182%. The market cap rallied 50% after that, reaching a market cap of $340 billion.

It makes total sense to use DOGE’s price as a gauge of the overall market sentiment. Money always flows where there is more upside potential. When the price retraces lower, smart investors cash out and reinvest into other coins. Cycles then repeat themselves.

Dogecoin’s price action is encouraging for the whole ecosystem as it primarily means that retail investors are committing new capital that they will eventually re-allocate among other coins once this frenzy ends.

Is Doge worth its valuation?

At the time of writing, Dogecoin is the 5th most valuable cryptocurrency, with a valuation of $70 bln. That’s a crazy achievement for a project which does not see any significant development for years. Even the two engineers who launched it back in 2013 are not actively maintaining the network.

On one side, that is the beauty of Dogecoin. It reflects the idea of a fully community-driven cryptocurrency that does not need any central body or organization to survive and evolve. But, on the other hand, there is not much real utility caught in this Blockchain, apart from the intention of keeping alive the dream that a meme-coin can prove to be an alternative payment system in parallel to the traditional banking system.

Top 5 Cryptocurrencies according to Coinmarketcap

No matter how successful Dogecoin may seem these days, due to the high level of hype surrounding the project, it’s pretty unlikely that it will be able to fulfill its promises fully. This is because one of the main pillars of Bitcoin’s success is its programmable hardcoded limited supply. As the supply shrinks and demand increases, the price will increase. On the other hand, Dogecoin has an unlimited supply of coins, which means that all being equal, the price will only rise if the growth of the demand exceeds the inflation rate.

To be realistic, if you are evaluating whether this is a good time to buy Dogecoin, you need to take into account that a valuation of $70 bln is currently higher than the aggregate valuation of the top 15 Ethereum-based DeFi Protocols, that trade for approximately $50 bln.

As a reference, Binance coin has a valuation of $100 bln. Moreover, the coin carries multiple utility functions across the ecosystem of products of the largest crypto exchange globally, processing trillions worth of transactions every month. On top of that, the coin benefits from a quarterly buyback program which is constantly reducing its supply.

Understanding the risk

It’s very reasonable to be long-term skeptics about the long-term value of investing in DOGE, especially if you plan to allocate significant portions of your available capital. Unfortunately, the history of cryptocurrencies is full of pump-and-dumps and FADs that eventually lead many investors to considerable losses.

Small investors and latecomers usually end up buying the top, and the price reversal happens so quickly that they don’t even have the time to plan an exit strategy.

Another factor you should keep in mind is the risk of buying DOGE at such a high valuation compared to the potential gains you expect to achieve. Doing the math, Dogecoin could drop 90%, and that would bring the price back to where it was only 30 days ago. At the same time, the general price target is $1, which would set the upside target to around 70%.

Potential upside and downside of buying DOGE at current valuations.

A trade that has a potential payoff lower than the possible loss, and where the downside is that deep resembles the risk/reward profile of a bet. That is important for you to understand before you decide to buy Dogecoin.

An actionable strategy to trade Dogecoin

Does that mean all your friends will talk about their investment in Dogecoin, and you will listen from the sidelines?

Instead of buying DOGE and praying for the trend to keep going up, you can build an active trading strategy to take advantage of the many price swings Dogecoin experiences every day.

Opening and closing positions quickly allow you to reduce your exposure to the overall market risk. But, of course, never forget the first rule, which is never investing more you can afford to lose.

The following is an example of a strategy you can run on Coinrule. The trading system catches short-term price dips on DOGE, just to sell the rebound immediately after. Dogecoin’s high volatility provides enough opportunities to have a better risk-adjusted return than a mere buy-and-hold strategy.

Active trading strategy on DOGE with Coinrule

The strategy is a classic trading system that is widely recognized among traders on all asset classes. Applied on Dogecoin, it has returned interesting results over the previous weeks as well.

You can find a guide to this specific setup in this article, or you can check other examples of strategies you can choose to apply to trade DOGE.

Now that you have a better context about what Dogecoin is, you can assess better whether it’s worth or not to buy Dogecoin.

If the answer is yes, you now have some examples of actionable strategies that could add value to your wallet. If all this volatility, instead, makes investing in Dogecoin too risky for you, this whole meme frenzy will at least entertain your spare time.

What is Coinrule

Coinrule allows you to create trading rules that run automatically across your favourite exchanges.

With Coinrule you can easily develop your own trading rules and strategies and set them up to run automatically. It is the “if-this-then-that” for cryptocurrency trading that allows you to plan your crypto trading rather than having to sit for hours in front of charts. Best of all? No coding skills are required, meaning anyone can use Coinrule.

DISCLAIMER

I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.