While Dogecoin (CCC:DOGE-USD) may not be “to the moon” as users such as Elon Musk would like, it’s certainly taken off. When I last wrote about it in March, the altcoin was trading at five cents. Now it’s trading at ten times that even after a selloff.
This is the third time I’m writing about Dogecoin. I’d like to tell DOGE bulls that the third time’s a charm and I’ve changed my mind. But despite the altcoin’s meteoric rise since March, I’m still skeptical.
This is, perhaps, what Mark Cuban meant when he said that Dogecoin, while not the best investment, is better than a lottery ticket.
I understand that being wrong about DOGE means I am not counting the hundreds of Dogecoin I may have accumulated as it grew tenfold in price. But if being wrong means I’m not speculating on something that seems more like a collectible than a currency, then I can live with that.
If DOGE lost nearly one-third of its value based on a flippant remark from Elon Musk, what does that say about the value of the currency? More importantly, what does it say about Dogecoin as a store of value?
I think it says that the altcoin’s success is resting on a flawed premise.
Is Dogecoin a Hill to Die On?
Maybe 2021 will be the year when we retire that phrase. But it’s useful in understanding the Dogecoin craze.
As I’ve written on many occasions, I offer my opinions as an investor, not a trader — and certainly not a speculative trader. DOGE and likely other cryptocurrencies have become too big to fail. They’ve become too big for investors to acknowledge the risk.
If you bought Dogecoin when it was worth five cents, you’ve made a tidy profit. More importantly, if it went to zero, it was something you could laugh about with your grandchildren.
But if you added to your position as DOGE was on its way to 74 cents, you’ve probably lost more than just a few stimulus bucks. That may mean you’re buying in hopes of finding kindred souls. And those with large positions in DOGE may have little choice but to keep buying.
Crypto bulls will say that’s just investing, right? You win some, you lose some. But I say that’s gambling. Yes, investors lose money, and there are some bad actors trading stocks as well.
Still Lacking as a Medium of Exchange
Hats off to Mark Cuban for accepting DOGE as payment at the Dallas Mavericks team store. Now let’s find 100 or so other similar use cases and we’ll have something.
In the meantime, Dogecoin still must be converted to fiat currency to be useful most of the time. And in an economy where a dollar buys less and less, you have to sell what is (for now) an appreciating asset to buy a depreciating asset. And if you do find an outlet that allows you to spend your Dogecoin directly, you still have to contend with a tax liability.
Of course, you can simply hold (or hodl) your Dogecoin. But if that’s your intention, then what’s your objective?
You May Be Better Off Bartering
The age-old barter system can be one of the best ways for two parties to walk away with something of value without exchanging money. However, it is difficult to ensure the trade is beneficial to both without an external measurement of worth like currency. A great deal of that concern can be mitigated if both parties are confident of the value that they possess.
This speaks to the fundamental problem I continue to have with cryptocurrencies, especially an altcoin like Dogecoin.
If the value of Dogecoin can tumble 30% or more with a single tweet, then its use in an equitable transaction becomes questionable. Which is, I suspect, the other, unstated reason that Elon Musk is less inclined to use Bitcoin (CCC:BTC-USD) as a form of payment for a Tesla (NASDAQ:TSLA) vehicle. The car has a known and relatively stable value; the cryptocurrency not so much.
You may say that’s not the right way to look at Dogecoin. If not, then let me be wrong.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
