Dogecoin (DOGE -4.93%) has surged in investor interest once again and has skyrocketed 30% over the past month. Part of the reason for its recent rise is likely in response to one company announcing that it will invest hundreds of millions of dollars in Dogecoin, as well as the lighter regulatory approach toward cryptocurrencies that the Trump administration has taken.
But before you buy Dogecoin while it's under $1, here are a few reasons why you might want to reconsider.
Image source: Getty Images.
1. It's a meme coin
This comes as no surprise to anyone following the crypto industry, but it's worth stressing that Dogecoin was launched as a joke and was never intended to be taken seriously as an investment.
Its price movements are solely based on hype cycles instead of meaningful developments or innovations with the coin or its blockchain. When positive news comes out, as it did recently when Bit Origin announced it would spend $500 million to buy Dogecoins, the cryptocurrency soars.
But the same is true on the opposite end, too. Any negative news can send Dogecoin reeling, and any pullback from famous people hyping the coin, including Elon Musk, can result in a loss of interest among investors. Consider that despite Dogecoin's 30% pop over the past month, its value is still down 28% year to date.
The long and short of it is that Dogecoin's gains probably aren't sustainable because there's nothing in the real world that's tethered to its success. It's purely speculative.
2. There's no limit to how many Dogecoins can be mined
There's no limit to the number of Dogecoins that can be mined. I'll let that sink in for a moment so you can consider if that sounds like a good starting place for an investment. In general, if something is more scarce, it usually becomes more valuable. Conversely, if a good is unlimited, its value usually falls over time.
Each year, 5 billion new Dogecoins are added to the cryptocurrency's circulation. In contrast, Bitcoin has a hard cap of 21 million coins that can be mined, and it's already nearing 20 million. While there's some speculation involved in buying and selling Bitcoin, at least it has a ceiling for how many coins will be in existence, which has been a catalyst for its increasing value.
If you're tempted to buy Dogecoin, ask yourself if you'd feel comfortable buying shares of a company that continues to issue new shares every year. Eventually, the stock would be worthless because the shares would be so diluted.
3. Other cryptocurrencies are far better long-term investments
I understand the appeal of investing in cryptocurrencies, especially if you're drawn to the idea that crypto could be transformational to financial systems. But if you're looking for novel investments, putting your money toward Bitcoin would likely be a much better choice than Dogecoin.
As I mentioned, Bitcoin has a limited supply, so that's already a huge plus over Dogecoin. Plus, it's already gained a lot of recognition globally as a store of value and even has exchange-traded funds (ETFs) that track its price movements. The existence of these funds means that large institutions back the coin as a legitimate investment through their Bitcoin ETFs, giving the coin much more staying power than Dogecoin.
The bottom line
For all the reasons above, I think it's wise for investors to steer clear of buying Dogecoin. Its price moves purely on speculation, there's no end to how many coins can be mined, and there are more legitimate cryptocurrencies that have far better staying power. If you want to invest in cryptocurrencies but you're not sure where to get started, buying a cryptocurrency ETF could be a smart move -- and likely less risky than owning Dogecoin.
