On Thursday, retail investors worldwide cheered as Dogecoin (CCC:DOGE-USD) prices advanced to about 17 cents. The cryptocurrency — originally started as a joke by its creators — would have turned a $10,000 investment last year into $840,000 today. And with serious returns, serious money has followed suit.
In recent days, daily trading volumes in DOGE have skyrocketed from about $150 million last year to $14.4 billion. Some corporations have even taken it upon themselves to come up with Dogecoin strategies.
But this misses the entire point. Dogecoin’s success has more to do with community than with traditional investment rules. For instance, 94% of its wallets hold less than $1,300 — far from the million-dollar portfolios that many consider the norm. Most investors only have tens or hundreds of dollars at stake.
So, instead of watching Dogecoin’s rapid rise and wondering, “is it too late to buy in,” why not buy $500 of Dogecoin and learn a couple of lessons from Generation Reddit? Even if it doesn’t make you a millionaire, it’s going to be far more fun than sitting on the sidelines.
Dogecoin Prices: The Power of One-Sided Bets
Ask any experienced investor about their philosophy. They will respond with some version of four investment pillars: 1) high-quality/growth assets with 2) good risk-adjusted return potential bought for 3) a reasonable price and 4) held for the long term. ESG-minded (environmental, social and governance) investors might add a fifth dimension — the asset must reflect their personal beliefs.
But when it comes to cryptocurrencies, many investors get stuck. Assets like Bitcoin (CCC:BTC-USD) tick none of the boxes; it has no underlying value beyond what others will pay for it. Meanwhile, its miners consume more electricity than the country of Argentina. Even bullish Wall Street analysts have urged caution.
“While bitcoin has been on a tear this year, it lost 75% of its value in 2018,” wrote Ari Levy at CNBC, “there’s no reason that couldn’t happen again.”
So, to play cryptocurrencies, investors need a final investment pillar that venture-capital investors have long known: they need to make one-sided bets.
These bets can pay off 10x, 20x, or even 1,000x on initial investments — the lottery tickets that Generation Reddit has come to favor. Because when your holdings can drop to zero, buying only makes sense when the upside potential justifies the risk.
Dogecoin vs. Bitcoin: A Fight for Growth
With Coinbase’s (NASDAQ:COIN) mammoth initial public offering (IPO) this week, newer crypto investors have quickly learned the importance of one-sided bets.
During Coinbase’s first trading day, the stock sank 24% from its peak as investors questioned the exchange’s valuation. At $64 billion today, it’s already worth more than Robinhood and almost five times what E-Trade sold for when Morgan Stanley (NYSE:MS) bought it in 2020.
Bitcoin, too, is running into growing pains. Its $1.2 trillion market cap has already overtaken the Japanese Yen (JPY) as the world’s third-largest currency. Another doubling would make BTC larger than the U.S. dollar.
That’s likely why both COIN stock and Bitcoin prices have stalled, even as other altcoins have pushed ahead. Despite notching 115% gains year-to-date (YTD), Bitcoin has still underperformed the 360% collective rise enjoyed by altcoins.
Enter Dogecoin: The Memecoin of the Generation
Meanwhile, Dogecoin has gone further. YTD, the currency is up 2,800%.
Core to this rise was Dogecoin’s $600 million starting market capitalization — a tiny fish in today’s ocean of cryptocurrencies. That’s why it didn’t take much beyond several well-timed tweets to send the currency skyrocketing. When you’re starting from a low point, it’s far easier to multiply your money quickly.
Today, Dogecoin still sits at about $21 billion — a modest size, but still a fraction of Bitcoin’s size. A DOGE rise to $1 — the dream of many Robinhood investors — still leaves the meme coin at half the size of Ethereum (CCC:ETH-USD), cryptocurrency’s number two player.
Why Buy $500 DOGE?
If you haven’t invested in Dogecoin yet, buying small amounts will help you understand how newer Robinhood investors often think.
That’s because most young investors (and meme-makers) aren’t buying DOGE for massive profits. They’re doing it for fun. The median Robinhood account only holds a $240 balance, so most investors only earn a couple of thousand dollars in best-case scenarios.
Kiersten Crum, known as @stonk.queen on TikTok, emblemizes the generation. The young stock market expert has amassed thousands of social-media followers looking for tips on how she turned $500 into $50,000.
By owning a small amount of DOGE, you too can enjoy some of the profits without having to worry about what it means for your retirement account.
Dogecoin Prices: The Joys of Investing
For many early Dogecoin investors, investing has always been more about having fun. Profits were welcome but secondary to the community of meme creators and other DOGE owners. In 2014, the Dogecoin community helped raise $184,000 to send Jamaica’s bobsled team to the Sochi Olympics, mimicking the 1993 movie Cool Runnings.
Profit-makers temporarily changed that in 2014, when someone on the Dogecoin subreddit raised money for a business scheme that collapsed.
“It’s like blood in the water, right?” said Jackson Palmer, one of Dogecoin’s creators, “[…] sharks can […] smell it from miles away.”
But the coin has since regained its standing as a gateway into the often-confusing world of cryptocurrencies. After all, when you have a “doge” as a mascot, crypto’s technicalities don’t seem so impossible.
Dogecoin may rise to $10 or go to zero. Either way, if you have $500 invested, you’ll win all the same. Because in the end, DOGE is a day at the racetrack. Profits are welcome, but most people are there to cheer their favorite horse on — whether they win or lose.
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.