Dogecoin (DOGE +0.00%) is the antithesis of the type of investment that legendary value proponent Warren Buffett tends to make. Chasing the crowd in hype-driven plays with no real fundamental value is the total opposite of his patient, farsighted, and totally grounded approach to buying stocks.
But understanding exactly why Buffett will certainly never buy the king of meme coins is a valuable exercise since it will help you to appreciate the timeless principles that the Oracle of Omaha uses. And besides, there are actually a couple of features that Dogecoin has that Buffett might like a lot. So let's look at how he might think about it.
There's more than one thing keeping him on the sidelines here
Buffett doesn't like cryptocurrencies in general. Regarding Bitcoin, he said in 2014: "It is not a durable means of exchange. It's not a store of value." He also went as far as to say that he would never buy any cryptocurrency, and it looks like he intends to keep that promise.
It's hard to blame him for not buying Dogecoin. The dog-themed meme coin has a market cap of about $38 billion, built on a firm foundation of precisely nothing, financially speaking.
CRYPTO: DOGE
Key Data Points
It doesn't generate any earnings, it has no useful purpose, and it's free to have fun making memes about dogs regardless of whether one holds the coin or not. Nor is there a long-term investment thesis that someone like Buffett could formulate as an explanation for how and why the coin will be worth more money in the future than it is today.
One problem that Buffett would have in particular is that Dogecoin has no economic moat to prevent competitors in the cryptocurrency sector from simply making a similar coin of their own, thereby eating into its portion of the value up for grabs from investors. And that's exactly what happened with the launch of Shiba Inu, another dog-themed coin that even features the exact same breed of dog for branding purporses.
As if that weren't enough, it's nearly impossible to even develop a sound methodology for calculating the value of an asset like Dogecoin. For someone like Buffett, who is always eager to buy assets for a lower price than their intrinsic value, that's yet another deal-breaker.
Still, there are at least a couple of things that he might find quite desirable about this coin, so read on.
Don't discount the drivers of value that actually exist
Buffett is a big proponent of buying businesses that have sustainable competitive advantages that enable them to protect their margins even in the face of other players in their sector. Dogecoin isn't a company, so it doesn't have any margins to protect, but it does have at least some sort of competitive advantage in two forms: its brand value and its status as the first meme coin to go to the moon multiple times.
The Dogecoin brand is recognizable by most investors by this point. There's only one Dogecoin, and in the meme coin sector, it is the undisputed top dog.
And it doesn't cost any anything to maintain that advantage, something that Buffett would doubtlessly appreciate in almost any other investment. That's part of the reason its holders don't simply dump the coin when its price isn't surging.
Then there's the fact that Dogecoin's price has seen incredible run-ups more than once. Most coins have their shot at flying and then crash to never exceed their all-time high ever again.
But it's likely that Dogecoin's unique status as the first meme coin to make it firmly into popular consciousness means that it will never fully fade away even as many other coins come and go. Once again, it isn't necessary for it to invest anything in any kind of growth initiatives or marketing to accomplish those run-ups, even if they're impossible to predict with accuracy.
In any event, Buffett's instinct is correct in that you probably shouldn't invest in this coin. Just remember that there's more than one element to his investing philosophy, and that sometimes there's value to find if you're willing to look for it in unlikely places.
