Please note that I am not a financial advisor. The following article is for the sole purpose of providing educational information on the topic discussed.
Dogecoin, the most famous meme cryptocurrency, has an iconic and heartbreaking price record that has made some millionaires and at the same time, made others lose money. Although during the beginning of 2021, Doge had managed to notably increase its market capitalization, to date, the coin has fallen several positions and has lost more than 30% of its value.
So, the question of the day is, is it too late to invest in Dogecoin? No. It is not too late. The strength and popularity of Dogecoin continue to hold up in the cryptocurrency market, and there are many who still see Dogecoin as a viable investment and a cryptocurrency with a lot of potential in 2022. Still, you should proceed with caution.
And with this being noted, let’s take a balanced look at this.
The history of Dogecoin is quite different from other cryptocurrencies such as Bitcoin or Ethereum: it was created by software engineers Billy Markus and Jackson Palmer in 2013. The coin was born as a joke and a way of trying to ridicule cryptocurrency enthusiasts.
Dogecoin takes its name and design based on a meme that was very popular at the time: the meme of a Japanese Shiba Inu dog. However, although it started as a simple joke, today, it’s one of the most important cryptos of the market, and it’s even part of the portfolio of some celebrities.
Dogecoin’s consensus mechanism is the same as Bitcoin’s, Proof of Work (PoW). This means that like Bitcoin, Doge mining consumes large amounts of energy and is carried out by people who, in exchange for their work, receive a certain number of Dogecoins, specifically 10K coins per mined block.
Since there is no limit to the number of Dogecoins that can be created through mining, the currency is highly inflationary by design and is considered by many to be better used as a means of payment rather than as an effective store of value.
However, this is a relative matter since many people have made millions with this cryptocurrency; in a conference focused on Bitcoin, Elon Musk revealed the five big investments that were key to increasing his wealth, and Dogecoin was found in fifth place.
Also earlier this year, Dogecoin gained cult status on the WallStreetBets profile comment wall on Reddit – the same place where the GameStop affair began last January. Coincidence?
Dogecoin has a much more abundant supply than other cryptocurrencies with greater capitalization; in fact, it has an unlimited supply. This means that the tokens will have a fairly low value per unit due to the huge supply available.
However, with a price of just $0.17 per coin and a market capitalization of $23B, Dogecoin is more valuable than many large internationally renowned companies.
As I already mentioned, Dogecoin rewards miners with 10K coins for each mined block, that is, every minute. Naturally, this creates enormous downward pressure on the price of the currency, which sees its supply constantly increasing.
Is Dogecoin profitable?
Before answering this question, it’s a good idea to understand what makes Dogecoin’s value move.
While it’s true that in May of this year the meme cryptocurrency reached its historical maximum price when it grew more than 26,000%, we must look at the causes behind that sudden increase in value.
Much of the popularity of Dogecoin has to do with the enormous support it receives from its community, but also from important celebrities, especially on Twitter and Reddit, such as Elon Musk, Snoop Dogg, or Mark Cuban, who frequently show their support for this cryptocurrency through these networks.
Many times it only takes a single positive comment towards Doge from someone like Elon Musk for the price to skyrocket. A great example of this is back in May 2021, Dogecoin’s price reached $0.75 in anticipation of Elon Musk hosting Saturday Night Live (SNL).
Should you buy Dogecoin?
While Dogecoin seems like a good investment based on the numbers and the fact that it has made some people millionaires overnight, never forget that it’s a highly volatile, unstable cryptocurrency with no real utility.
Yes, Dogecoin has proven to be quite profitable in recent months, but its behavior is unpredictable in the long run; its price could go up dramatically because of some celebrity tweet, but it could also go to zero. It is best to study the market very well and not make any hasty decisions.
Another point to consider is that we already know that Dogecoin is an inflationary currency by default. This means that at some point, the number of available coins will be so high that it’ll exceed demand, which could cause their price to drop precipitously.
However, there are some reasons why Doge may be profitable in the long term.
1. The popularity of Dogecoin
Popularity is a factor that can lead a cryptocurrency to reach very high prices. Since Dogecoin is very popular due to the great support it receives from certain personalities, there is a chance that its price will go through the roof at any moment in a surprising way – and that has the potential to create millionaires.
2. It can be a good long-term investment
Many people who bought Doge years ago when it was worth nothing have come to reap huge rewards for their patience. Many instant millionaires were formed in this way in the crypto world.
And for clarity, here are some reasons why you shouldn’t buy Dogecoin:
The high volatility of the cryptocurrency sector is more evident with assets such as Dogecoin, since it is a currency whose price rise is based on outright speculation, as well as the opinion of celebrities. That means you could lose your money just as easily as you made it.
2. It is an inflationary coin
As I already mentioned, the supply of Doge is unlimited, so sooner or later there will be more coins available in the market than demand for them. If many people suddenly decide to sell their investment, Doge’s value will plummet.
The rules that underpin Bitcoin stipulate that there can only be 21 million bitcoin, and we are getting closer and closer to reaching that number. It isn’t clear what will happen to the value of Bitcoin when that limit is reached.
Will people lose interest?
Or will the shortage of coins make the price skyrocket?
Unlike Bitcoin, there is no limit to the number of Dogecoins that can be produced, and today they already passed the figure of 100,000 million units. This explains why each Dogecoin today is worth less than $1 while one Bitcoin is worth around $50,000.
Common sense tells us that scarce goods are more likely to hold their value than more abundant goods. But in the crypto ecosystem, common sense is not the best guide in most cases, something especially true in the case of Dogecoin.
A digital unit has no intrinsic value if it cannot be used in transactions. In this sense, both Bitcoin and Dogecoin can be used to transact online and have value because people say they have value.
However, in people’s minds, Bitcoin is the queen of cryptocurrencies, the first-born that started it all and people see it as a store of value; something like gold, but in the digital world. With Dogecoin, this may not happen, as people’s perception of the cryptocurrency is different. It’s like an opportunity to seize for a quick profit before it crashes.
But beyond being used as an exchange or store of value, both cryptocurrencies don’t have any other real utility as do other cryptocurrencies such as Ethereum, for example. This is a factor to take into account when deciding whether or not to invest in the currency.
Is Dogecoin halal?
Is DOGE halal? Yes, Dogecoin is halal. Scholars who share the opinion that cryptocurrency is permissible would also hold the opinion that Dogecoin is halal and even though DOGE is used mostly as a currency, at this time, scholars would not classify it as a currency but rather as an asset.
But the real question that some of you want to know is, is it permissible to invest in Dogecoin? Scholars who hold the opinion that Dogecoin is halal would normally say that it is also permissible to buy, hold, and trade DOGE.
However, the intention of investing in Dogecoin is done with the primary focus of making a profit by selling when the price goes higher and this is where speculation comes in. It is incredibly difficult to time the market and money can be made and lost easily.
Remember when I noted earlier that the price of DOGE skyrocketed in anticipation of Elon Musk’s appearance on SNL? Investors were speculating that Elon would say or do something that would trigger another bull run on DOGE and this did not happen; instead, the price plummeted.
Scholars acknowledge that speculation exists in all investments and is allowed, to some degree, according to the sharia, yet scholars will still caution the user to not invest on pure speculation or to take incredibly high risks on investing in assets that are extremely volatile.
Generally speaking, when it comes to investing in cryptocurrencies, a good rule of thumb to follow is that any cryptocurrency that does not have a proven record of being a store of value or have any distinct utility for the user or the blockchain will normally end being considered a highly speculative asset and this is where extreme caution must be observed when considering to invest.
Future of Dogecoin
What started as a joke in 2013 by computer engineers Jackson Palmer and Billy Markus to create a digital payment system, ended up becoming one of the most popular cryptocurrencies in the industry. At first, the fate of the cryptocurrency seemed uncertain, but this changed as it began to accumulate more and more capital, reaching $1B in 2018.
Much of this success comes from its incredibly active community, which is constantly participating in charities and the like. The open-source nature of the cryptocurrency has also contributed to this, something that makes it attractive as “the cryptocurrency of the people.”
Furthermore, this broad user base uses cryptocurrency primarily as a currency and not so much as a digital asset. Although of course, there are also those more serious investors who keep large volumes of coins in storage.
Even with all the dizzying rise and fall in the price produced by the comments of celebrities like Elon Musk or Mark Cuban, when there are periods of calm, the cryptocurrency maintains its price quite stable, which indicates that Dogecoin is probably more than a passing fad.
Of course, investors would feel much more peace of mind if the cryptocurrency became worth $1 and held that price, but that is something very unlikely to happen.
Finally, what will make Dogecoin maintain its value or increase it over time, is undoubtedly the support of its community, and that they find ways to make the currency more useful, something similar to what is happening with its direct competitor, Shiba Inu.
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