Elon Musk has been actively talking about cryptocurrencies. As I write on Dogecoin (CCC:DOGE-USD), Musk tweeted that “SpaceX is going to put a literal Dogecoin on the literal moon.”
A tweet that might also imply that Dogecoin is going to surge further from current levels. The tweet did send Dogecoin surging temporarily, from 5.4 cents to 7 cents. In the last one year, Dogecoin rose by 3,000%.
The rally does not come as a surprise. With Bitcoin (CCC:BTC-USD) moving higher, altcoins followed. I do believe that Bitcoin is positioned for wider adoption in the coming years.
A recent article by Reuters rightly points out that “after long being shunned by traditional financial firms, Bitcoin and other virtual currencies appear to be increasingly entering the mainstream as an asset and routine payment vehicle.”
However, I would personally be very selective when considering exposure to altcoins. And Dogecoin is not one of the names in my crypto shopping list.
Let’s discuss the reasons for holding this view.
Dogecoin Is Just Another Digital Currency
If we look at the website of Dogecoin, it’s described as “an open-source peer-to-peer digital currency.”
The question I ask myself here is – What makes Dogecoin special?
If I have to own a cryptocurrency, I would rather hold Bitcoin. Fractional investing ensures that Dogecoin price is not the differentiating factor.
It’s like saying that the dollar still remains the global reserve currency, but I would hold some Zimbabwe dollar in my portfolio.
Bitcoin has a limited supply and that’s one reason for the crypto surging higher. On the other hand, Dogecoin has 130 billion circulating coins with no maximum supply limit.
Of course, Dogecoin is not as bad as the Zimbabwe dollar, but I personally prefer altcoins that have a limited circulating supply.
Coming back to Musk, the founder and CEO of Tesla (NASDAQ:TSLA) has been actively promoting Dogecoin. However, Tesla bought $1.5 billion in Bitcoin in February 2021. Further, Musk has also announced that the electric vehicle company will be accepting Bitcoin as a payment method.
However, there is no tweet or news on Musk buying Dogecoin or accepting the crypto as a payment method.
This is the difference between Bitcoin and Dogecoin. The former is already at an inflection point of wider adoption. The latter seems like a speculative coin more than a fiat currency alternative.
Last month, billionaire entrepreneur Mark Cuban tweeted that “If I had to choose between buying a lottery ticket and Dogecoin, I would buy Dogecoin.” This tweet possibly sums up my view on the altcoin.
Of course, the speculative rally can continue longer than expected. But holding a big position in Dogecoin would certainly disturb my sleep. I would be more comfortable with the likes of Bitcoin and Ethereum (CCC:ETH-USD).
When it comes to altcoins, I would prefer to look at specific business themes with a cryptocurrency. As an example. Akash Network (CCC:AKT-USD) is a decentralized cloud computing marketplace.
The decentralized world still uses the centralized cloud. Akash intends to change that and the company’s open-source cloud comes at a significantly lower cost as compared to the likes of Microsoft (NASDAQ:MSFT), Alphabet’s Google (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN).
This is not an investment recommendation. It’s just the type of coins that I would look at rather than exposure to another digital currency with a supply glut.
It’s important to note that valuations might be stretched in the cryptocurrency space. If Bitcoin does correct by 20%, there will be several altcoins that can plunge by 30% to 50%. It’s more like the high beta small-cap stocks.
Therefore, my personal view is bearish on Dogecoin. On any sharp correction, the coin might be a good trading bet. But I find it difficult to make a strong long-term bull case for the altcoin.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.