The crypto Dogecoin (CCC:DOGE-USD) was originally created as a joke to satirize Bitcoin (CCC:BTC-USD). As the magazine The Verge says, the joke is over and “Dogecoin is on a run, has escaped the yard and is headed to the moon.”
For example, at the end of 2020, Dogecoin was trading at 57 cents per coin. Yesterday, it closed at 26.44 cents. That represents a gain of over 45 times in the space of fewer than four months.
In addition, in the last month alone, from the end of March 31, when Dogecoin was at 6.2 cents per coin, it is now up 326%. Currently, Dogecoin has a market capitalization of $34.8 billion, according to CoinMarketCap.com.
Unique Features
Two months ago, I wrote an article for InvestorPlace about Dogecoin’s slightly inflationary token supply structure. The article “Dogecoin Could Turn Into A Real Currency To Spend Rather Than Hoard” explained how it works.
For example, the article shows that Dogecoin’s supply will increase at a fairly steady rate. There are a set number of Dogecoins, once mined, that can be released into the market each year. Right now that is set at no more than 5 billion per year.
Given that there are just 128 billion Dogecoin in the market, this allows for an inflation rate of 3.9% this year. But next year, the rate declines a bit since there will be 133 billion Dogecoin. Then the rate falls to 3.759%. And so forth, so that by the 10th year the increase is 50 billion per that period, but in the ninth year, the inflation rate is only 2.89% (i.e., 5 billion divided by 173 billion).
This has several advantages for consumers. For one, they can count on the increase in supply. Depending on how intense the demand for Dogecoins will be in any particular year, the supply-demand balance can help the market set the appropriate price.
It will tend to steadily rise or time, all other things being equal. Hence, the slightly inflationary supply structure will feed through to the price.
Therefore, for all practical purposes, the growth rate of Dogecoin is predictable. This means it can function as an actual currency. People will use it to purchase and sell goods and services as a cryptocurrency, rather than Bitcoin, for example, which tends to be hoarded.
As a result, Dogecoin could have a significant value in the future as a currency, even though its blockchain might not be that unique.
What to Do With Dogecoin
Dogecoin started as a joke between Billy Markus and Jackson Palmer, two programmers. According to Wikipedia, they wanted to create a payment system free from fees. They used the face of the Shiba Inu dog from the “Doge” meme as its logo.
But now it’s no joke. However, let the buyer beware. As I have pointed out before, The Wall Street Journal says that one person controls a large portion of Dogecoin. According to the article, the person controls 28% of the total supply. If they ever decide to sell, watch out below, Dogecoin holders.
The most important thing to remember is to not go all-in with Dogecoin. If you are going to buy this cryptocurrency because you think it will just keep on rising, make sure to diversify. It can come down just as quickly.
Therefore, make sure to buy a number of other cryptocurrencies and/or stocks that can help diversify your total investments. This can help spread out the pain, so to speak, if some stocks or cryptos do worse than others in a downturn.
Here is the bottom line: If you are going to buy Dogecoin simply because it is rising, expect to see it fall as well. It is no joke anymore.
On the date of publication, Mark R. Hake held a long position in Bitcoin (BTC).
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
