The meme-inspired cryptocurrency Dogecoin (DOGE -6.84%) has been one of the big investing stories of the year, rising from half a penny to more than $0.72 at its height earlier this year for an incredible gain of 14,300%. But like most other cryptocurrencies, Dogecoin has seen its price drop and is now back down to around $0.25.
While the frenzy behind Dogecoin has subsided somewhat, could this be a good time to buy the dip before its next big run? Let's take a look.
Not a particularly special crypto
Started as a joke by two software engineers in 2013, Dogecoin is often called a meme cryptocurrency -- it was actually inspired by a meme that was popular in 2010 of a Shiba Inu, a breed of Japanese hunting dog. That's why you may see the Shiba Inu frequently associated with the cryptocurrency.
But the problem with Dogecoin is that it currently doesn't offer any significant differentiation from other cryptocurrencies like bitcoin, the pioneer of cryptocurrencies and blockchain technology. Yes, Dogecoin tokens can be sent instantaneously to anyone on the internet without a bank having to facilitate the transaction, and yes, it is transacted on a decentralized network -- but so are lots of cryptocurrencies.
As a payments platform, Dogecoin doesn't really stand out either. It can process roughly 40 transactions per second and 50,000 transactions per day. That's actually faster than the likes of bitcoin and Ether, but it's nowhere near industry-leading and does not beat traditional payments companies either. The XRP ledger can process 1,500 transactions per second, while the traditional payments company Visa can handle 1,700 transactions per second (and in theory could handle tens of thousands transactions per second).
There are other cons to Dogecoin as well. There isn't a finite amount like bitcoin with its 21 million tokens. Instead, there are 129.5 billion tokens in circulation and counting. And other than payments, which most cryptocurrencies offer, it doesn't have any unique real-world utility like Ethereum with its smart contracts, or Theta Token with its ability to improve video streaming.
What's the case for Dogecoin?
If there is one big thing Dogecoin has going, it's the fun nature of the meme-inspired cryptocurrency, which has essentially turned it into a marketing machine. That Shiba Inu mascot on Dogecoin is unique in that it really has used the power of the internet -- and the power of memes -- to grow and build a community.
Celebrities like Tesla CEO Elon Musk and billionaire investor Mark Cuban have latched onto Dogecoin and pumped it wildly among their massive social media followings. This has benefited Dogecoin -- especially the relationship with Musk, who has teamed up with Dogecoin developers to make technical improvements to the blockchain. A recent upgrade proposal by Musk and the developers, for instance, would drastically reduce Dogecoin fees by 90% if passed. It's hard to ignore the impact influencers, social media buzz, and going viral can have on stocks today -- just look at GameStop. This kind of buzz can be hard to replicate.
"If there becomes enough of a community around an asset, and that community decides to effectively create long-term value through some form of declining supply cap over time, that could actually equate to a valuable currency," Mike Bucella, a general partner at BlockTower Capital, said earlier this year in regards to Dogecoin.
I'd argue that this has already happened in some regards. Dogecoin has gone from a joke to the sixth-largest cryptocurrency by market capitalization, and it now essentially moves with bitcoin and the wider cryptocurrency market in terms of trading.
While the bitcoin and Dogecoin charts aren't identical, they have more or less moved on a similar trajectory, which is not uncommon for cryptocurrencies in general. But this does mean that however useless Dogecoin might be, it could continue to move with the broader cryptocurrency market.
Buy the dip?
While Dogecoin may follow the trend of other cryptocurrencies, and I am sure it will rise at some point from current levels, I cannot recommend buying the dip when there are so many crypto options out there with better functionality and potential for future utility. This narrative could change if Dogecoin can continue to grow and foster the community that led to its meteoric rise in the first place, or if Musk and the developers upgrade the blockchain to a point where it has a real advantage over the majority of other cryptocurrencies. But until there is more proof of this, other than the small amount of Dogecoin I acquired a while ago for fun, I am going to stay on the sidelines during this recent dip.