Dogecoin (DOGE +4.87%) might be extremely volatile. But its performance can't be denied. In the past 10 years, the digital asset has skyrocketed more than 34,000% (as of Feb. 10).
But the downfall is notable. As of this writing, this meme token is trading a stomach-churning 87% below its peak from May 2021. Should you buy the dip or avoid Dogecoin altogether?
Image source: Getty Images.
Only buy if you believe one thing
Dogecoin is its own blockchain network, which contrasts with a lot of cryptocurrencies that are built on top of Ethereum. This means that it has less functionality.
Consequently, Dogecoin can be viewed as its own payment network. This makes it a direct competitor to Bitcoin, the world's first and most valuable cryptocurrency.
Investors who are interested in buying Dogecoin should probably be bullish on one key development occurring. Investors should only add Dogecoin to their portfolios if they have a firm belief that in the future, its adoption as a store of value and medium of exchange will grow. Again, this puts Dogecoin in a head-to-head battle against Bitcoin, which has a market cap that's about 88 times more valuable.
There's really no reason to believe the dog-themed token can hold a candle to Bitcoin, though. Bitcoin is viewed as a more legitimate financial instrument around the world. And due to its first-mover advantage, liquidity, network effect, and fixed supply, it's in a much better position to succeed in the long run.
CRYPTO: DOGE
Key Data Points
Betting on hype is a losing game
If you don't believe that Dogecoin will make progress as a widely accepted store of value or medium of exchange, then it makes no sense to buy this token. It lacks fundamental characteristics, like a large developer network, buy-in from the traditional financial services industry and regulators, and a hard supply cap.
Dogecoin's community of supporters is what keeps it relevant. But even this seems to be fading away, as indicated by the price steadily declining in recent years. There's nothing stopping these people from flocking to the shiny new digital assets that pop up.
Of course, that doesn't mean there can't be short periods when the price rapidly rises. But allocating capital to chase this volatility, thinking you can correctly time the market, is an easy way to lose money.
The right way to invest is to buy an asset you'd be willing to own for five or 10 years. Dogecoin doesn't even come close to passing this test. Looking to the future, there's a good chance its price will be lower than it is today.
