In the unconventional world of cryptocurrency investing, where prices fluctuate wildly and regulation is largely non-existent, one coin manages to stand out as the bad kind.
Dogecoin, otherwise known as DOGE, is based on a viral internet meme of a Japanese Shiba Inu, and was originally created as a joke version of Bitcoin. The currency’s official Twitter bio says: “Dogecoin is an open source peer-to-peer digital currency favored (sic) by Shiba Inus worldwide. Elon Musk thinks we’re pretty cool.”
Despite its colorful origin story, Dogecoin is as volatile as any other cryptocurrency, reaching an all-time high of 73 cents in May 2021, before plunging 78% below a year later . At the time of writing, it was trading for around 6 US cents.
Does this mean Australian investors should pile in now and ‘buy the dip’? Or is now the time to walk away in anticipation of a long crypto winter?
And, if so, should the entire concept of cryptocurrency be given the widest possible exposure? The Australian co-creator of Dogecoin certainly thinks so. Yes, you read that correctly: Dogecoin founder Jackson Palmer is no longer a fan of crypto, claiming in a recent interview that the asset class is ‘parasitic’ and a haven for looters.
Here’s what you need to know about Dogecoin so you can decide for yourself.
First, the (major) warning of crypto wealth
If your financial plans require you to sleep easy at night, cryptocurrencies are definitely not for you. And it’s not just Dogecoin that worries the authorities: more mainstream cryptocurrencies are also cause for concern, according to Australian consumer advocacy group CHOICE.
CHOICE is calling for rules to better protect consumers, arguing in a submission to the Federal Government that cryptocurrencies should be subject to the same consumer protection obligations as traditional financial services.
“As it stands, mandatory protections in the unregulated cryptocurrency market are somewhere between negligible and non-existent,” notes CHOICE.
And there are many in the wider global financial community who have concerns. For example, Susannah Streeter, senior investment and markets analyst at UK financial adviser Hargreaves Lansdown, says: “If people deal with products they don’t fully understand, they risk losing all their money.”
Therefore, not only are cryptocurrencies extremely volatile, but, unlike other parts of the financial services market, investors are not entitled to compensation if things go wrong.
Some disgruntled former investors, however, are agitating for compensation. American investor Keith Johnson is suing Elon Musk for $258 billion, claiming Musk caused investors to lose an estimated $86 billion through his enthusiastic promotion of DOGE on Twitter.
Fair enough. But what is Dogecoin?
This brings us back to Dogecoin, a cryptocurrency popular with amateur investors that has even been labeled the ‘people’s crypto’ by Musk.
Dogecoin (trade ticker DOGE) was invented in 2013 by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer (mentioned above). Their goal was to create a joke version of the already established Bitcoin to give the public a friendly way to deal with the world of crypto-assets.
To the surprise of the engineers, people started using Dogecoin as soon as the product was released. Crypto experts, however, claim that the underlying technology and overall utility of the cryptocurrency is not on par with Bitcoin and Ethereum.
How has Dogecoin performed?
If Dogecoin started as a joke, the numbers behind the cryptocurrency are deadly.
Dogecoin’s value increased by more than 14,000% since the start of 2021, peaking at an all-time high of more than 70 cents. However, since May 2021, Dogecoin’s price has been in freefall, fueled by occasional messages from Elon Musk, but otherwise on a distinctly downward spiral. It’s currently worth about 6 cents, while price-tracking website CoinMarketGap puts its market capitalization at around $8.8 billion — up from a high of $70 billion in 2021.
In comparative terms, it remains a relative minnow behind the two biggies: Bitcoin with a market cap of $385 billion and Ethereum with $138 billion.
What has caused Dogecoin’s price movements?
In 2021, Dogecoin’s position was boosted by tacit endorsements from high-profile showbiz names, including rapper Snoop Dogg and Gene Simmons, frontman of the rock band Kiss.
Most notably, a 2019 Twitter poll decided that Elon Musk should be the chairman of Dogecoin. The Tesla boss saw the funny side and has since played along with the drill, tweeting that Dogecoin is his favorite cryptocurrency.
With his personal Twitter account boasting 100 million followers, even a brief pro-Dogecoin comment from Musk has the effect of boosting the cryptocurrency’s popularity and thus its investment appeal.
In a recent tweet, Musk went so far as to describe himself as the ‘Father of the Doge’.
How to buy Dogecoin in Australia
As Dogecoin’s popularity has grown, so has its availability. Australian investors can buy the cryptocurrency via bank transfer or credit/debit card in AUD on a number of exchanges, including Binance, Swyftx or FTX.
Recently, additional online providers Gemini and eToro have also announced that Dogecoin can now be purchased through their platforms, thus expanding the potential number of Australian investors who may decide to come on board.
Should You Buy Dogecoin?
When it comes to cryptocurrencies of any variety, financial professionals advise caution.
After all, any asset that potentially appreciates simply on the back of a mention on a prime-time TV show or on social media is worth pausing before hitting the ‘buy’ button.
You can also fall victim to foul play. On Christmas Day in 2013, for example, 30 million coins were stolen as part of a cyber attack on the online platform Dogewallet.
The loss amounted to $16,000.
Laith Khalaf, financial analyst at AJ Bell, says: “Dogecoin in a way epitomizes cryptocurrency, starting as a joke and now growing in value. This highlights how difficult it is to accurately predict which cryptocurrencies, if any, will end up staying the course.
“This kind of whimsical approach to life is entirely commendable in the context of some entertainment, but it is not a good companion for sound financial planning.”
Susannah Streeter of Hargreaves Lansdown is equally cautious: “Investors should be extremely wary of getting caught up in this herd mentality because Dogecoin is very much a speculative bet whose valuation has no reliable basis.
“Demand has come from traders trying to ‘game’ the system and others hoping to profit from future price increases rather than using the coins as a medium of exchange. Predicting the point at which demand slows down and prices begin to fall is very difficult, if not impossible.”
And, like most investment fads, from the tulip fever of the 1630s to the dot.com bubble of the early 2000s, there is also a fear of missing out factor.
Whatever you decide, the strong opinion of financial experts is to only invest what you can afford to lose.
This article is not an endorsement of any particular cryptocurrency, broker or exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.
