the Dogecoin (CRYPTO: DOGE) Blockchain is a ghost town when compared to other cryptocurrencies in the top 10 market capitalization. Still, the cryptocurrency is still rising as the broader market moves, including a 70% surge in early August.
With a small handful of investors wielding market-moving power over the entire currency, Dogecoin isn’t a viable long-term investment – and why its pumps are based on little more than hot air.
Hardly anyone uses Dogecoin
The Dogecoin blockchain recorded just over 23,000 daily transactions on August 9 based on the latest data available. That’s only a fraction of the 1.2 million transactions that went on ether (CRYPTO: ETH), and the around 200,000 recorded on Bitcoin (CRYPTO: BTC).
Even cryptocurrencies with a market capitalization of less than a third of Dogecoin regularly see more transactions. Bitcoin cash (CRYPTO: BCH) and Litecoin (CRYPTO: LTC) – although both have recently been ousted from the top 10 in market capitalization – recorded 83,000 and 133,000 transactions, respectively, on August 8th.
Why is the price of Dogecoin increasing despite such a narrow user base? The answer lies in its largely unequal ownership.
Whales control the blockchain
Dogecoin has one of the most one-sided asset distributions in the crypto space, with only one address making up 28% of all Dogecoins. Only eleven addresses hold 46% of the coins in circulation, while only 82 addresses make up over 64% of the total offer.
You can see the influence of these few big hands on the movement of wealth through its blockchain. Users transferred more than $ 5 billion worth of coins through Dogecoin on Aug. 8, compared to just over $ 8 billion with Ethereum. But as mentioned before, Ethereum achieved this with more than 50 times as many users as Dogecoin, which means that the average Doge user is moving a much higher value of coins per transaction.
Cryptocurrency was born out of a desire to eradicate intermediaries such as bankers and governments and give control of one’s finances to the individual. But Dogecoin misses the oft-cited goal of decentralizing the cryptocurrency space, and its concentration carries serious risks for potential investors. Its centralized supply effectively creates a small cabal of gamblers with banking powers of their own – and the ability to dictate the Doge price at will.
A joke currency that is no longer funny
With followers like Elon Musk, Dogecoin unexpectedly became the story of the year in the cryptocurrency space. In doing so, it has gained a reputation as a human-run underdog, like the thousands of individual investors who have come together on social media to pump up GameStop (NYSE: GME).
But the hard data gathered from Dogecoin’s transparent blockchain suggests exactly the opposite. Dogecoin was created as a joke in 2013 – and by the standards of its own creators, it’s stayed that way to this day. Dogecoin co-creator Billy Markus sold all of his Doge inventory to buy a Honda Civic in 2015. Co-creator Jackson Palmer has since dismissed Dogecoin as well, while calling the entire cryptocurrency space “the worst parts of today’s capitalist system.”
The highly concentrated supply of Dogecoin poses a clear danger to the average investor who could confuse Dogecoin popularity with legitimacy. Cavalier Dogecoin investors might want to look back on the two month period between May and July when the price of the coin fell 78% – one of the biggest slumps in the crypto space at the time.
While that price drop followed the direction of the broader market at the time, Dogecoin suffered all the more from its extravagances in the previous months as it pumped to 12,000%. What goes up has to fall, and Dogecoin investors have learned the hard way that celebrities (even from the likes of Elon Musk) are not solid investment fundamentals.
Dogecoin has not had an active development team since its creators abandoned it, and almost eight years after its invention, the coin is still not used in any application. With no long term prospects and no real use case, Dogecoin continues to rise and fall due to the actions of a few wealthy people. If these people decide it is time to sell, the average investor is likely to face heavy losses. Because of this, Dogecoin should be viewed as a very risky, speculative vehicle rather than a viable long-term investment.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.