If Bitcoin (CCC:BTC-USD) has ever felt speculative, consider Dogecoin (CCC:DOGE-USD) – a cryptocurrency that started as a joke in 2013. At the time, many saw it as a “cryptocurrency doomed to failure.” Fast forward to 2021, and Dogecoin’s investors have been the ones laughing to the bank. Anyone who invested $10,000 in the “meme coin” at the start of the year would have almost $1,000,000 today.
Yet, for all the lucky Dogecoin investors who got in early, thousands more have watched from the sidelines. These skeptics have worried for all the right reasons; Dogecoin and all cryptocurrencies have no intrinsic value. Any buyer could potentially become “the last person holding the bag” in one of history’s most fantastic bubbles. Such awareness has protected investors for centuries.
But such truths are cold comfort to those missing out today.
That’s because Dogecoin’s value a decade from now is more an existential question than a practical one. By the time historians start writing about decentralized cryptocurrencies, original investors could have sold out long before.
So, if you want to participate in the Great Dogecoin Bubble of 2021, there are still plenty of good reasons to join in. At $50 billion, the currency is still less than 5% the value of Bitcoin; its fans have even created a day to celebrate the coin.
But just like skydiving, make sure you bring a parachute along. Because when other investors only want to send Dogecoin “to the moon,” you need a strategy that can protect you no matter if Dogecoin goes to $1 trillion or zero one day.
Dogecoin Prices: A Growing Real-World Sensation
Last week, Dogecoin overtook Tether to become the world’s fifth-largest cryptocurrency. If it were a company, the coin would now be worth as much as Expedia (NASDAQ:EXPE) and Etsy (NASDAQ:ETSY) combined.
Investors have taken note. As Dogecoin has continued to gain traction among retail buyers, larger institutions have started piling in. At one point, trading volumes topped $70 billion. Today, the coin has gained so many fans that even corporations have started creating strategies around Dogecoin.
The coin’s rapid rise has investors worried. Last week, Ethereum and Cardano co-creator Charles Hoskins took to YouTube to warn of an impending bubble.
“Let’s be very clear – this is a bubble. The price of DOGE is not sustainable,” Mr. Hoskins said. “DOGE does not have a stable development team. There is no original tech in DOGE.”
Before regular investors give up, however, there’s some good news: Dogecoin could still overcome these hurdles and hit $10.
Is Dogecoin Worth $1 Trillion?
How has Dogecoin’s trillion-dollar price potential come about? Thank Bitcoin.
For years, Bitcoin had confounded cryptocurrency exchanges and trading platforms with its inefficient proof-of-work (PoW) protocols. Transactions could take days to clear, creating bottlenecks for customers. To compensate, these exchanges developed workarounds such as order batching and off-chain transactions. Rather than rely on Bitcoin’s blockchain, exchanges would do much of the transactions in-house.
It was a win-win situation. Customers could get their money sooner, while exchanges could earn more commissions.
The same tools now power altcoins like Dogecoin. It doesn’t matter that DOGE has a 1-minute transaction time and lacks a team of dedicated coders. Platforms like Robinhood now make altcoin transactions virtually free and instantaneous (provided they’re working at the time). Meanwhile, payment gateways like BitPay have done the work to make these currencies available to e-commerce merchants.
That laid the foundation for Dogecoin’s explosive rise. What lit the fuse was an even stronger reason: people like the coin.
Dogecoin on a Rocket Ship to Mars
To play the Dogecoin Bubble of 2021, investors should realize that cryptocurrency is essentially a game of popularity. Much like collectible stamps, blockchain currencies are only valuable if others believe it too.
And Dogecoin has plenty of fans.
In late January, Tesla CEO Elon Musk tweeted the first of many Dogecoin endorsements. Other celebrities would follow suit with validations of their own.
The effect was immediate. Dogecoin prices shot up 400% within days, creating a feedback loop that would send the coin even higher. The more people bought the coin, the louder the calls for widespread exchange adoption became. In the world of cryptocurrencies, popularity reigns king.
Investors will continue seeing opportunity in crypto momentum investing. Though Dogecoin is unlikely to rise another 10,000%, there’s still room for it to grow 20x and rival Bitcoin’s size. People putting in a couple of hundred dollars could see thousands in return.
Investing in the Great Dogecoin Bubble of 2021
Such potential has warped the sensibilities of many investors. Today, Reddit forums boast screenshots of people investing their entire six-figure portfolios in Dogecoin – far more than most can stand to lose. Others have shown even bolder bets.
The images might be genuine or faked. But the message is clear: you’re in or out. You either put your entire portfolio into DOGE or don’t join the club at all.
This “all-or-nothing” thinking (known as “splitting” in cognitive psychology) has created a worrying trend. No longer are people looking for small wins. There’s a feeling that Dogecoin investors need to reach the moon or die trying.
The data has illustrated this shift. In late 2020, just 1,165 Dogecoin wallets held more than $87,000 worth of DOGE. Today, over 30,000 wallets may have that much. Even the buy-and-hold investors seemed to have stopped diversifying – the top five wallets from January have barely budged from the top rich-list.
This is concerning news for Dogecoin investors. The speculative currency was supposed to be a place for people to park some money for fun – not a casino where you bet your entire life savings. And when more people have more significant sums on the line, there’s a greater chance that things will go wrong.
Lessons from GameStop
In early 2020, Reddit investors on r/WallStreetBets bought Gamestop (NYSE:GME) stock and options as an outlandish bet on a dying videogame retailer. The forum had long acted as an outlet for investors looking to share their war stories. GameStop stock was a perfect mix of cheapness and nostalgia for millennial investors to love.
As more people piled in, the environment quickly changed. By January 2021, GameStop short-sellers such as Citron Research’s Andrew Left started receiving personal threats and un-ordered late-night pizzas at their door. Melvin Capital’s Gabe Plotkin received messages that were even more extreme.
When investors have so much riding on a stock, there’s far less room for good-natured fun.
Today, the Dogecoin community is starting to see the same creep. From the Wall Street Journal to Entrepreneur Magazine, news outlets have turned their Dogecoin largely positive, mimicking the bullishness investors might have only seen on Reddit’s r/Dogecoin subreddit just three months ago. The echo chamber is only getting louder.
Meanwhile, the same issues that plague crypto remain. Governments can still start enforcing regulations, and every cryptocurrency still has zero intrinsic value. (Stablecoins backed by fiat currencies are an exception.)
That means investors need to remember to keep their bets reasonable. There’s always a temptation to “fall in love” with an investment. But for those buying solely for profits, there’s little reason to form emotional intimacy with something that can’t love you back.
Ride the Crypto “Crazy Train,” But Take Some Profits
A market bubble isn’t defined by a rapid rise alone – assets like London real estate or gold bullion can stay expensive for generations. Instead, it’s the rapid fall that has historians looking back and tut-tutting in disapproval.
Today, Dogecoin could still go either way. Its growing popularity could make it the next Bitcoin – professional developers or the “Dogecoin Whale” could help the meme coin leapfrog others technologically. But Dogecoin could just as quickly become the next RadioShack – a once-beloved brand that got replaced as people moved on.
For investors looking to buy into Dogecoin, know this: it’s not too late. At a $50 billion market cap, the meme coin still has room to run.
Just don’t bet your life savings, and make sure you take profits from time to time. Because when you’re riding the crypto “crazy train,” always act as if a crash could be right around the next corner.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
