The Speculative Case for Dogecoin Over Other Cryptos

• One of the riskiest cryptocurrencies you can buy, Dogecoin makes for an interesting case as a purely speculative vehicle.
• Though DOGE is not for everyone, it’s attractive for gamblers because it’s unpretentiously a wager on the greater fool theory.
• Ultimately, this crypto coin can make for quick short-term trades, but its longer-term viability is dependent on broader sentiment for digital assets.

When Jackson Palmer and Billy Markus first laid out the framework for what would become Dogecoin (DOGE), they could have hardly imagined – despite initial early interest – that their creation would become emblematic of the exuberance and wild excesses of the cryptocurrency market. Referenced in popular TV programs and inquiries to central bankers, Dogecoin has emerged as a cultural icon.

It’s also made its legions of fans – especially the early believers – incredibly rich. At its lows, DOGE was trading hands for nine-thousandths of a cent; that is, a nine with four zeroes in front of it (along with a decimal point). At its peak, Dogecoin was rapidly moving toward the 80-cent mark. You can grab a calculator to see the enormous profitability magnitude.

Still, Dogecoin understandably has its critics. For starters, it’s merely one of nearly 20,000 cryptos available for trading. True, DOGE has garnered a social cachet that would be difficult to usurp, in no small part to Elon Musk of Tesla (TSLA) fame singing its praises. However, the crypto community can be fickle. What’s popular today is not guaranteed to be that way forever.

As well, Dogecoin has not been immune to volatility. From its highs to the afternoon session of June 21, 2022, the memecoin has hemorrhaged over 90% of market value. While contrarian investors are always looking for a deal, sometimes a deal can be too good.

The bottom line is that Dogecoin is extremely risky, appropriate only for hardened speculators. Nevertheless, it’s not completely without merit.

Dogecoin is Crypto Without the Pretense

Peruse the forums dedicated to cryptos and the blockchain and you’ll invariably encounter lofty aspirations about decentralized digital assets replacing tired fiat-currency-based economies. In doing so, blockchain ecosystems would have succeeded in resolving wealth disparities while promoting true meritocracy; a libertarian paradise, if you will.

More than likely, the blockchain will fail in most of the major goals its advocates have set out for it. Decentralization alone will not cure the ills of humanity. If that were the case, prior efforts at decentralized currencies – such as the free-banking era – should have sparked social equity and other holistically positive developments.

In addition, blockchain advocates supporting grandiose targets tend to rely on whataboutisms to make their case. For instance, a common retort against virtual-currency mining’s extraordinary energy consumption is to contrast it with the fiat-based counterpart, which is invariably more energy intensive. However, fiat-based systems necessarily require more resources because they’re tied to sovereign nations. It’s hardly a fair comparison.

Well, the beauty of Dogecoin is that it doesn’t make any promises about any kind of social good. Instead, per its original marketing message, DOGE is a fun way to participate in digital assets. Stated bluntly and perhaps pejoratively, it’s a pure play on the greater fool theory.

You’re buying in the hopes that someone else will buy it from you at a higher price. And this process works until it doesn’t.

The Community Has Spoken

While the above statement doesn’t automatically inspire much confidence, here’s the reality. When you strip away the rah-rah messaging that accompanies heavily hyped cryptos, what fundamentally separates one underlying blockchain project from another?

Take Ethereum (ETH) as an example. Essentially the backbone of blockchain-based architectures, Ethereum garnered tremendous popularity with developers. But over the past several months, network transaction fees (called gas) became onerous, creating an exodus to other blockchains like Solana (SOL). Years from now, there could be another competitor that steals market share from everyone else.

It seems like a never-ending story. Therefore, at the root of the valuation equation – which is different from the utility argument – cryptos come down to whether or not willing buyers exist at rising price intervals. Put another way, aside from the hype train, cryptos practically operate on level ground.

Interestingly, the crypto community may recognize this dynamic, providing a clear advantage for Dogecoin. For instance, on-chain metrics demonstrate that 51% of DOGE holders are in the money at the current price (6.6 cents), while 43% are out of the money (6% are at the money).

In contrast, 49% of Ethereum holders are in the money at the current price ($1,150) while 48% are out (3% are at the money). With fewer people on a percentage basis losing money on Dogecoin, it implies that most DOGE investors got in early and this extra margin of safety allows them to hold the line for longer.

However, Ethereum is almost 50/50 in terms of profitable investors. Therefore, a higher risk exists that ETH holders can panic out of their position if volatility hits the broader crypto space.

Compelling But Don’t Ignore the Dangers

Lacking the outlandish ambitions for global harmony, Dogecoin is a breath of fresh air. It’s pure speculation, with stakeholders hoping that some other market participant will see value in DOGE at a much higher price than they originally bought in. It sounds crass until you realize that all cryptos largely operate in the same manner.

Some are just honest about it.

That said, I wouldn’t put any more money in Dogecoin than you’re comfortable losing. Although DOGE could swing higher in the near term, the longer-term picture is cloudy. Should the rest of the crypto complex plummet, DOGE would likely not be exempt from volatility. At some point, even the early believers could start feeling the heat.

Disclosure: The author held DOGE and ETH at time of publication.

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