Dogecoin (DOGE 2.06%) is down by over 60% from its all-time high of $0.74 as hype fades and competing meme coins steal its thunder. But now that it has crashed, should new investors buy the dip? Let's explore the asset's pros and cons to answer that question. 

The pros of Dogecoin:

Shiba Inu breed of dog

Image source: Getty Images.

1. Its first-mover advantage 

Launched in 2013, Dogecoin is the original meme coin, a niche of cryptocurrencies designed to go viral by exploiting hype and humorous themes. Meme coins generally don't introduce innovative uses of blockchain technology. Instead, they rely on the "greater fool" theory, which suggests investors can profit from a useless asset because other people will buy it for more in the future. 

With eight years of history, Dogecoin predates major cryptocurrencies like Ethereum (founded in 2015), Cardano (2017), and Solana (2020). And its age gives it advantages in brand recognition, which can lead to staying power and acceptance.

According to data from cryptocurrency directory, over 1,900 merchants accept Dogecoin as payment, not too shabby for currency designed as a joke. 

2. Its strong community 

Dogecoin's first-mover advantage has given it a strong community, which is crucial for meme coins because they rely on hype instead of fundamentals. The asset is listed on 1.3 million people's watch lists on (compared to Bitcoin's 2.7 million), which suggests many investors are interested in its price movements. And the Dogecoin Reddit community has 2.2 million subscribers. 

Reddit is important because it is known for creating memes and making topics go rival. Dogecoin is also popular with Tesla CEO Elon Musk, who owns Dogecoin (along with Bitcoin and Ethereum) and has been known to pump the assets to his 63 million Twitter followers. 

The cons of Dogecoin:

Stock chart flashing sell

Image source: Getty Images.

1. Competition from rival meme coins 

While Dogecoin enjoys a first-mover advantage, it faces increasing competition from rival meme coins designed to play upon the same themes that made Dogecoin popular: the Shiba Inu breed of dog (which is part of Dogecoin's branding) and Musk, who enjoys a cult following in the cryptocurrency community. 

In early October, Musk tweeted "My Shiba Inu puppy will be named Floki," creating a tidal wave of retail interest in similarly named cryptocurrencies. The most popular of these assets, Shiba Inu, is up a jaw-dropping 60,000,000% since inception. Others like Floki Inu have soared over 1,000,000%. Growth in these rival assets could steal some of Dogecoin's thunder as investors look for the next best thing. 

2. Its weak fundamentals 

As an older cryptocurrency, Dogecoin was presumably designed to function as a store of value and medium of exchange. But it has built-in inflation with the number of coins (currently 132 billion) programmed to expand by 5 billion annually forever, potentially eroding its value over the long term. 

Dogecoin also doesn't enable users to create decentralized applications, which are self-executing programs allowing users to interact on the blockchain without an intermediary. 

Newer meme coins are building competitive moats for themselves by creating blockchain-based ecosystems for their tokens. For example, Shiba Inu's developers have created a complementary decentralized exchange called ShibaSwap, which will allow users to exchange their Shiba tokens for other assets without a centralized middleman. And as blockchain technology continues to improve, Dogecoin might fall further behind its competition in functionality and potential uses. 

Conclusion: Dogecoin is still too risky 

The cryptocurrency market is notoriously difficult to predict, but the risks of investing in Dogecoin seem to outweigh the rewards. While the coin's first-mover advantage gives it valuable brand recognition, it will struggle against newer meme coins with superior functionality and use cases. 

And with built-in inflation, Dogecoin may also perform poorly as a store of value over the long term -- unless Elon Musk keeps pumping it, that is.