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Why Is Dogecoin Shooting Higher This Week?

By Jon Quast – Aug 12, 2021 at 5:29PM

Key Points

  • Retail investors, to the surprise of many, are still increasing cryptocurrency trading activity.
  • Dogecoin remains a popular option.
  • But cryptocurrency experts (much less you or me) have no idea where Dogecoin is going next.

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While there was little news on Dogecoin, there's a cryptocurrency trend it's likely still benefiting from.

What happened

Popular cryptocurrency Dogecoin (DOGE -4.25%) has seen its value shoot higher over the past week. As of late Thursday afternoon, the price per token had gone up 24% since last Friday. And it's up roughly 50% over the last couple of weeks. That's a big return in a short period of time for anyone holding it.

So what

It's hard to point to anything specific with Dogecoin that would explain its outsize move higher. But there's an important general trend to note. It turns out that retail investors are still trading crypto, a lot! Coinbase Global, which enables the trading of cryptocurrencies, reported quarterly financial results earlier this week. The company said that monthly transacting users (MTUs) on its platform increased a whopping 44% just from the previous quarter. Moreover, trading volume increased 38% during this time.

Two people look inquisitively at a computer in an outdoor setting.

Image source: Getty Images.

According to the website CoinMarketCap, Dogecoin is the world's seventh largest cryptocurrency by market capitalization. Therefore, as more people start trading crypto, Dogecoin is likely high on their list of coins to buy. Previously, investors couldn't trade Dogecoin on Coinbase, but the company began supporting the cryptocurrency on June 3, opening the door for Coinbase's nearly 9 million MTUs. And like everything in economics, as demand for dogecoins outpaces supply, prices will go up, as they have over the past week.

Now what

Cryptocurrency investors are really wondering where Dogecoin is going from here. But the answer is hotly debated. A company named Finder polled 42 cryptocurrency experts to get their take. The survey found that 80% believe Dogecoin is a bubble. But some of those experts believe the price will continue to head higher this year before the bubble pops next year. Some even believe $1 per dogecoin is possible this year.

A closer look at Finder's survey results reveals a wide range of opinions, including Dogecoin being almost worthless by the end of the year. In short, the so-called experts are extremely divided. But here's the thing: They're divided because no one (including you and me) really knows with any reliability what the future holds for Dogecoin. The experts are all just guessing.

In contrast to stocks, it's hard to develop a strong conviction in a Dogecoin investment. You can develop strong convictions with stocks because they represent ownership stakes in a real-world business. It's far easier to predict the future cash flows of a business that has a lot of recurring revenue. In that case, investors can construct a bullish thesis and invest a meaningful part of their portfolios in attractive opportunities. That's not the case with cryptocurrencies like Dogecoin.

That doesn't mean Dogecoin can't go higher -- it can. And it certainly doesn't mean don't buy cryptocurrencies. It simply means to ground your level of conviction in reality and invest accordingly.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Dogecoin Stock Quote
$0.10 (-4.25%) $0.00
Coinbase Global Stock Quote
Coinbase Global
$42.41 (-7.80%) $-3.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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