Dogecoin is making waves, but make sure it’s good for you before you invest.
Dogecoin (pronounced dowzhkoyn) was a parody cryptocurrency that traded for less than a cent for years. However, by spring 2021, the shiba inu-themed coin had established its footing – and a spot on major cryptocurrency trading platforms.
Dogecoin is now available on seven of the cryptocurrency platforms assessed by NerdWallet: Gemini, SoFi Active Investing, Webull, Robinhood, eToro, Coinbase, and Binance.US. These platforms made trading the currency simpler than ever before, and by May 2021, it had achieved a price of more than 70 cents and a market capitalization of $88.8 billion.
To put that in perspective, at its height in May, dogecoin would have placed in the top 100 corporations in the S&P 500 in terms of market capitalization. Its value has subsequently dropped dramatically, but it remains one of the top ten cryptocurrencies in terms of market capitalization.
However, don’t simply believe the hype. Make sure you understand what you’re getting into before adding dogecoin to your portfolio. Here are three things to think about before purchasing dogecoin.
What makes dogecoin valuable?
To comprehend what gives a cryptocurrency its value, it’s vital to grasp the fundamentals of blockchain technology and what led to the creation of altcoins like dogecoin.
For example, investors may find value in bitcoin since it was designed to be a new and improved method of recording financial transactions. Ethereum investors often point to the network’s capacity to run smart contracts — agreements that execute automatically if certain conditions are fulfilled — as the network’s primary value driver. Hundreds of different cryptocurrencies and tokens have been created, with the goal of either improving on an existing currency or providing a new, blockchain-based solution to an existing issue.
So, why was Dogecoin developed and what makes it valuable?
Billy Markus, co-founder of dogecoin, has said that he created the cryptocurrency as a joke to add some levity, love, and charity to the crypto community. Dogecoin supporters often utilize social media to recall some of the coin’s guiding ideals, such as charity, fundraising, support for one another, cryptocurrency advocacy, and meme creation. And the dogecoin community has followed suit: In 2014, the Dogecoin Foundation raised more than $50,000 in dogecoin to assist with the Kenyan drinking water issue, and the same year, a group of dogecoin holders donated $25,000 in dogecoin to assist in sending the Jamaican bobsled team to the 2014 Olympics.
But arguably the project’s main message is best summed up by a popular dogecoin Reddit rallying cry, which also happens to form an abbreviation of DOGE: “Do Only Good Everyday.”
So, dogecoin has no actual intended purpose other than to be a force for good in the world, and it was not formed with the idea of benefitting any individual or corporation. Because there is no actual means to assess the currency in any conventional sense, its value in terms of US dollars is solely determined by the market. In other words, the value of dogecoin will be determined by what someone else is ready to pay for it at any particular time. While this is a component of almost every asset sold on the secondary market, dogecoin’s absence of conventional value implies that its price is exclusively determined by market forces.
What role will Dogecoin play in your portfolio?
Because of their volatility, developing status, and lack of regulation, all cryptocurrencies are still considered alternative assets, which according to financial rules of thumb should account for the least amount of your investment portfolio. According to conventional wisdom, you should strive to contribute to tax-advantaged retirement plans such as an IRA or, if possible, a workplace 401(k) (k). If you’re currently contributing to or have maxed out any of these accounts, you may want to create a supplementary taxable brokerage account as well.
And what can you put your money into with these accounts? Using these accounts to invest in highly diversified, low-cost index funds may be an excellent place to start. They’re not as spectacular as dogecoin — don’t anticipate 13,000 percent increases — but they’re far less volatile and, in the long run, provide more stable profits. The annualized return on the S&P 500 has been about 10% during the last few decades.
If you’ve already built a diversified portfolio of low-cost index funds through tax-advantaged accounts or taxable brokerage accounts — and plan to contribute to these accounts on a regular basis — you may be in a position to add alternative investments like cryptocurrencies to your portfolio, but make sure you fully understand the risks involved.
How much dogecoin can you afford?
To calculate how much to invest in Dogecoin, consider the following: Would you be financially healthy if you lost your whole investment tomorrow? Sure, you’d be disappointed, but would you still have your core portfolio of diverse, long-term assets and enough cash on hand to cover your expenses?
If the answer is no, you are most likely investing more than you can afford to lose. In general, it’s best to set aside money for alternative investments only after you’ve paid off high-interest debt, amassed a significant cash reserve, and established a diverse portfolio.
Where to buy dogecoin
Dogecoin is available on a variety of cryptocurrency exchanges, however, the following crypto brokers and exchanges have been evaluated by Credit Cadabra and provide dogecoin. Check, like with any cryptocurrency, whether the site enables you to access your own digital wallet, which implies you can send and receive dogecoin. Some brokers may only allow you to purchase and sell dogecoin in USD.
|Exchange||Can send/receive dogecoin?|
|SoFi Active Investing||No.|
|eToro||Yes, but limited.|