I’m generally not a fan of cryptocurrencies. The crypto market is trying to mature but tokens like Dogecoin (CCC:DOGE-USD) confirm that maturity and depth are very far away. And DOGE-USD is an altcoin that I do not like at all. I would never invest a single penny in an asset like this.
I have already written two articles about Dogecoin. The first in April 2021 highlighted how fun is a reason to speculate, not a reason to invest, and helped cover how and why DOGE-USD was making such erratic price movements.
In my second article the following month, I explained why Dogecoin was bound to crash down to earth.
In May, I did say there was a reason to invest in Dogecoin. But note my argument:
“If you are an investor with an investment policy toward pure speculation, have a very high-risk tolerance, are ready to lose potentially all your money and ignore the fundamentals, focusing only on the latest meme “assets” and even social media investing based on dubious picks, then Dogecoin may be something to consider speculating with… But at some point, this trend will end for Dogecoin, and my guess is it will end very badly.”
The simple truth is that the Dogecoin party ended shortly after my second article. Dogecoin crashed from about $0.74 to $0.2022 by the end of July. That’s a 73% decline in value for Dogecoin. But as I have written in the past, being a financial analyst isn’t about making successful predictions; it’s about presenting well-researched arguments backed up by data.
My financial analysis for Dogecoin shows that even at $0.20 it is not cheap. DOGE-USD remains too pricey. I fact, I would give it a fair value of $0.
If you remain in need of convincing, here are my top five reasons to avoid Dogecoin.
It’s Pure Speculation
Any price movement in Dogecoin has been strictly due to speculation. Elon Musk supported it, then changed his mind and social media forums pushed Dogecoin to a price that was predictably unsustainable.
The difference between investing and speculation is that speculating involves assets with poor or weak fundamentals and no logical reasons to buy them other than the hope that someone else will buy them for more than you paid. This proved very short-lived for DOGE-USD as people rushed to book profits.
Yes, when luck is on your side you should make the most of it. But when logic returned to the cryptocurrency market Dogecoin crashed, as it should. Speculating on this asset was nothing more than wishful thinking.
A Laughable Business Plan and Use Case
The official site says “Dogecoin is an open-source peer-to-peer digital currency, favored by Shiba Inus worldwide. Dogecoin sets itself apart from other digital currencies with an amazing, vibrant community made up of friendly folks just like you.”
The site says Dogecoin is a revolutionary digital currency. What? Revolutionary for what exactly? Ease of use? Tip a comment on Twitter or send money to your favorite band? Donate to a charity? Or if you are a creator to receive support from your fans? You can perform all of these things with classic forms of money. Overall the business use of Dogecoin to me is at least very minimal. I do not see any use for Dogecoin that has value. It is very restricted within its community, with dim prospects.
Highly Volatile Prices
Dogecoin is a very volatile altcoin, unsuitable as an investment asset for the majority of people. Who wants to spend every day monitoring their portfolios, waking up to massive gains one day and horrendous losses the next? Who needs the stress of knowing their investments are susceptible to social media price manipulation and influencer agendas?
Sure, stocks can be volatile too. But at least stocks generally move for fundamental reasons beyond pure speculation.
Why Would Developers Bother?
On the Dogecoin website support page, it says in part:
“Dogecoin is free software. If you are a software developer, you can use your shibapowers to do good and improve Dogecoin. You can even build amazing new services or software that use Dogecoin.”
I believe that there will be no enthusiasm from developers to invest time, money and effort in an altcoin that has no intrinsic value. Sure, there’s hype and speculation, meaning there’s money to be made — for now. At some point, that attention will wane as cryptocurrencies with legitimate utility become more widely known.
Dogecoin: A Hustle, a Bubble and a Lesson in Investing
Investing and trading are both continuous activities that allow for mistakes as well as opportunities to evolve and learn from those mistakes.
Dogecoin is a valuable lesson to anyone who thinks that you can invest with luck and profits will come no matter what just because social media supports an altcoin. Stop being naïve.
The epic bubble I predicted in Dogecoin is now a reality. There are too many investment opportunities out there to ever consider an investment in DOGE-USD. Stop being irrational.
Allow me to end this article with a parable based on a true story.
Imagine you have traveled to an exotic island for the first time. You’re on a beautiful beach, so excited and eager to swim. After you enter the shallows, a person approaches to welcomes you to the beautiful locale.
But they gives you a piece of advice. Further from shore, this beautiful beach has very strong currents and a very high risk of sharks. You now know that swimming now isn’t just exciting, but risky too. What you do with this information is your choice.
Dogecoin is the water, what you will do with it is your choice.
My choice is to avoid completely DOGE-USD. I have tried to find a single reason to write something positive about it. I have found none.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.