Dogecoin Is a Better Long-Term Play Than You Have Been Led to Believe

Dogecoin (CCC:DOGE-USD), the meme cryptocurrency styled after an internet-famous Shiba Inu, is being treated like yesterday’s news.

A close-up shot of a Shiba Inu with a grinning face.
Source: Wollertz / Shutterstock

In recent weeks, the crypto-collapse has affected all corners of this headline-grabbing market segment, but none has had to face the music quite like Dogecoin.

After rising to a high of nearly 74 cents in May, DOGE has mostly lost value since then, leading some to declare Dogecoin is dead.

However, the meme coin is still outperforming the stock market despite the corrections.

Dogecoin dropped 10% in 24 hours Thursday, but an early morning tweet from Elon Musk managed to stem the tide somewhat.

The Tesla (NASDAQ:TSLA) CEO is a prominent Dogecoin backer. Responding to crypto YouTuber Matt Wallace, Musk tweeted the canine-themed cryptocurrency could beat out Ether and Bitcoin (CCC:BTC-USD) following an upcoming upgrade.

“In my opinion, ‘Doge’ has the potential to maximize transaction rates and reduce transaction costs with exchanges acting as a de facto secondary layer,” wrote Musk. “Bitcoin and Ethereum are looking for a multi-layer transaction system, but the base layer transaction rates are slow and the transaction fees are high.”

The upgrade will introduce SegWit, limiting third-party inflexibility, and CheckSequenceVerify (CSV), allowing more sophisticated scripts to perform secure transactions within a predefined time frame.

So there is a bull case for Dogecoin. If you were sitting on the sidelines waiting for the bubble to burst, now is your time to purchase this crypto asset.

Positive Catalysts for Dogecoin

Software developers Billy Markus and Jackson Palmer created Dogecoin to be more friendly and approachable instead of a competitor to Litecoin (CCC:LTC-USD) or Bitcoin.

It began trading on JAN. 1, 2014 with an opening price of $0.0020.

Since that time, Dogecoin bulls have tried their best to push the cryptocurrency over $1. However, so far, they have been unable to do so.

That does not mean it hasn’t rewarded investors. Year to date, the coin is up 4,501.01%. That is despite the broader crypto selloff. The astounding rally is leading to heated discussions on the legitimacy of Dogecoin as an asset.

Investments are long-term, while gambling is short-term. Considering the volatility of Dogecoin, the cynics will always be there.

But when investing in this space, you really need to keep one question in mind: Can the token help develop real-world solutions that can transform the way we live, work, play, and learn?

If the answer is yes, you can go ahead and invest. So long as you have a diversified portfolio, minor hiccups will not matter.

Dogecoin was initially designed to be “as ridiculous as possible,” but there are several areas where it is useful.

The altcoin has massive growth potential. If it did not, the Dallas Mavericks would not have approved it as a payment system.

With thousands of fans using DOGE to buy the team’s merchandise, increased activity contributes to exponential trade volumes. It is also, incidentally, pushing the cryptocurrency’s price higher.

What Does DOGE Offer?

Billy Markus and Jackson Palmer based the Dogecoin protocol on existing cryptocurrencies Litecoin and Luckycoin. These cryptocurrencies employed the SCRYPT proof of work algorithm. That makes Dogecoin relatively faster than Bitcoin.

Dogecoin confirms 1 block every minute. Litecoin takes 2 minutes 30 seconds, Ethereum, 13.11 minutes, and Bitcoin’s average transaction time is 13.95 minutes.

In addition, miners can use normal Central Processing Units (CPU) and Graphic Processing Units (GPU) instead of specialized equipment for mining due to adopting the SCRYPT protocol.

Fast transaction and confirmation speeds automatically result in lower transaction costs. So, it is not surprising DOGE is now a payment option for the Dallas Mavericks, COVCARE, and other retail establishments.

Looking ahead, the new upgrades for Dogecoin will serve as an additional tailwind for the coin. The cumulative update will bring some features on Bitcoin to Dogecoin, including segregated witness (SegWit), which lowers the threat of transaction malleability and improves block capacity.

What Are the Risks?

Unlike Bitcoin, Dogecoin suffers because of infinite supply. Initially, creators of the cryptocurrency pegged the maximum supply at 100 billion, but due to the enormous demand, the creators decided to add 5 billion coins annually.

Bitcoin enthusiasts argue the digital coin is the world’s best hedge against rising consumer prices since there will never be more than 21 million bitcoin.

Dogecoin is also in danger of becoming a target for pump-and-dump schemes.

There are several outlets on Twitter (NYSE:TWTR), Reddit, and Facebook (NASDAQ:FB) where community members come together looking for the next “cool thing” to pump, and DOGE, being a decentralized cryptocurrency with a strong presence in internet pop culture, became a particular favorite.

Elon Musk – now the self-proclaimed “Dogefather” – is a prominent reason why doge prices shot higher on several occasions by sharing various references and memes relating to the dog-themed cryptocurrency on his social media feed.

Again, the actual functionality of the altcoin is not under discussion. DOGE is fast acquiring celebrity fans from rappers and YouTubers. Its price movements will continue to reflect these endorsements in some shape or form.

Finally, Dogecoin’s tech development rests on the shoulders of voluntary developers who, until recently, had submitted very few code updates and releases.

Before the latest Dogecoin Core 1.14.3 release in February, the last update was in November 2019. In a fast-moving market segment, this speed leaves several investors wanting.

Contrarian View

During a daytime talk-show interview with Ellen DeGeneres, the other billionaire dogecoin fan, Mark Cuban, said:

“Cryptocurrency is just an asset to invest in. Bitcoin is kind of like a digital version of gold. Ethereum is a digital version of a currency. And then you got dogecoin, which is just fun. But the weird part about it [is] it went from being a cryptocurrency joke to now becoming something that’s becoming a digital currency.”

There are two ways to play this one. Either you are going to go ahead and enter and exit your position regularly. In that case, the ebbs and flows will hurt you more than others.

Remember, this is a news-sensitive space. Even if the altcoin itself is not under discussion, something else can happen that could drive prices lower.

Or you can take a long-term approach, in which case you can afford to be bullish. The same is true for analysts.

Whenever the time horizon is short, the analysis becomes somewhat bearish, but when you stretch to at least the end of the year, things start to look better. I will advise you to take the latter approach with this one.

On the date of publication, Faizan Farooque 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.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.


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