1 Major Risk of Investing in Dogecoin @themotleyfool #stocks $DOGE $GME $BTC $ETH

Dogecoin’s price might be slumping, but that doesn’t mean it’s a fantastic investment.

Katie Brockman

Dogecoin (CRYPTO:DOGE) has been making headlines over the last few months because of its staggering returns. Since the start of the year, the purchase price of Dogecoin has surged by almost 7,000% as of this writing. Over the past 12 months, it’s up by over 15,500%.

By comparison, two of the largest names in crypto, Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), have seen their costs rise by approximately 300% and 1,000%, respectively, over the last year. When many cryptocurrencies have undergone record-breaking returns, Dogecoin is in a league of its own.

It’s difficult to dismiss numbers such as these. However, just as an investment is earning sky-high yields doesn’t necessarily mean it’s a fantastic idea to buy. Dogecoin might be too good to be true, and there’s one enormous risk to take into account before you invest.

Shiba Inu dog whose image is associated with Dogecoin.


Image source: Getty Images.

A low cost isn’t necessarily a great thing

Cryptocurrencies such as Bitcoin and Ethereum might be the largest players in the crypto area, however they’re also costly. Back in mid-April when Bitcoin reached its summit, it cost approximately $65,000 per token. Ethereum cost just over $4,000 per token at its summit in mid-May.

Dogecoin’s record high, however, was only $0.68. With a price that low, it’s among the most inexpensive investments out there. And if you’re on the fence about investing, it may be tempting to purchase Dogecoin since it’s cheap.

That may be an incredibly risky move, however, because cheap investments aren’t necessarily good investments. If you purchase Dogecoin just because it’s cheaper than its rivals, you could still wind up losing money.

While all cryptocurrencies are insecure, Dogecoin is among the most dangerous investments. Before you even think about purchasing, it’s important to consider how this investment may pan out over time.

Can Dogecoin endure over the long run?

With any investment, the main element to think about is whether or not it’s possible to undergo long-term growth. Long-term investments are more likely to bounce back after downturns and keep a competitive edge in their industry.

Cryptocurrencies, generally speaking, are still highly speculative. In other words, nobody knows for certain whether they’ll still be around in a couple of years or decades. Dogecoin, however, is particularly risky because it doesn’t have as much utility as its rivals.

In order for any cryptocurrency to become mainstream, it has to have some sort of real-world use. Bitcoin is the most popular type of cryptocurrency, and it’s the kind retailers are willing to accept. That gives it a substantial advantage because widespread adoption will be crucial to any cryptocurrency’s success.

Ethereum also has real world utility through its blockchain technology. The Ethereum blockchain isn’t only host to its native market, Ether, but it’s also the system used by non-fungible tokens (NFTs), decentralized finance, and thousands of different applications. The Ethereum technology has the potential to revolutionize various businesses, and if it succeeds, its cryptocurrency, Ether, has a great chance of flourishing as well.

Dogecoin, on the other hand, has very little utility at the moment. The few retailers that do accept crypto are more inclined to take Bitcoin than Dogecoin, and Dogecoin doesn’t have some significant benefits over its competitors.

A wavy blue digital piggy bank against a dark background.

Image source: Getty Images.

Will Dogecoin’s cost continue to rise?

Of course, despite having very little real-world usefulness, Dogecoin’s yields have outpaced its rivals. However, those gains are largely artificial, and they probably won’t last forever.

Part of the reason Dogecoin’s cost has soared is since it’s been heavily promoted on the web. Celebrity billionaires such as Elon Musk and Mark Cuban have encouraged Dogecoin on social networking, and retail investors have invested in droves.

The more people who invest in an asset, the greater its price becomes. Dogecoin’s conduct is comparable to this GameStop saga before this year when investors pumped up the stock price only to ditch it soon after in an effort to make a fast buck.

With any investment, if the stock price does not align with the underlying principles, that’s a red flag. Dogecoin has little utility and no competitive edge in the market, yet its cost has skyrocketed. That’s a indication that this expansion won’t last over the long term.

The cost of Dogecoin has taken a turn for the worse over the last couple of weeks. And unless it develops a means to remain competitive, there’s a great chance that it won’t live over time. So no matter how cheap it is, it’s still a dangerous investment.

Where should you invest rather?

Whether you decide to invest in cryptocurrency or shares, it’s ‘s always a great idea to research an investment’s underlying fundamentals. Look beyond price, and attempt to ascertain whether the investment has real world utility and a solid competitive advantage.

The best investments are those which are more likely to experience long-term development. Dogecoin might not be the best investment right now, but there are loads of safer choices out there that still have the potential for greater earnings.

This report represents this opinion of the author, who might disagree with the “official” recommendation standing of a Motley Fool superior advisory support. We’re motley! Questioning an investing thesis — even among our own — helps us think seriously about investing and make decisions that help us become smarter, happier, and wealthier.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.“>

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