On Thursday, private investors around the world cheered as Dogecoin (CCC:DOGE-USD) Prices rose to around 17 cents. The cryptocurrency – originally started as a joke by its makers – would have turned a $ 10,000 investment last year into $ 840,000 today. And with serious returns, serious money has followed suit.
In the past few days, the daily trading volume in DOGE has grown from around $ 150 million last year to $ 14.4 billion. Some companies have even made it their business to develop Dogecoin strategies.
But that misses the whole point. Dogecoin’s success has more to do with the community than with traditional investment rules. For example, 94% of wallets hold less than $ 1,300 – a far cry from the million dollar portfolios that many consider to be the norm. Most investors only have tens or hundreds of dollars at stake.
Instead of watching Dogecoin’s rapid rise and wondering, “is it too late to buy in,” why not buy $ 500 worth of Dogecoin and learn a few lessons from generation? Reddit? Even if it doesn’t make you a millionaire, it will be a lot more fun than sitting on the sidelines.
Dogecoin Prizes: The Power of One-Sided Betting
Ask any experienced investor about their philosophy. You will respond with a version of four pillars of investment: 1) high quality / high growth assets with 2) good risk-adjusted return potential that is 3) bought at a reasonable price and 4) held long term. ESG (environmental, social and governance) investors could add a fifth dimension – the asset needs to reflect their personal beliefs.
But when it comes to cryptocurrencies, many investors get stuck. Assets like Bitcoin (CCC:BTC-USD) do not tick any of the boxes; It has no underlying value beyond what others pay for it. The miners now use more electricity than Argentina. Even bullish Wall Street analysts have urged caution.
“While Bitcoin had a crack this year, it lost 75% of its value in 2018,” wrote CNBC’s Ari Levy, “there is no reason that cannot happen again.”
In order to play cryptocurrencies, investors need one final pillar of investment that venture capital investors have long known: they need to place one-sided bets.
These bets can pay off 10x, 20x or even 1,000x with initial investments – the lottery tickets preferred by Generation Reddit. Because if your inventory can go down to zero, buying only makes sense if the upside justifies the risk.
Dogecoin vs. Bitcoin: A Struggle for Growth
With Coinbase’s (NASDAQ:COIN) This week’s mammoth initial public offering (IPO), newer crypto investors were quick to learn the importance of one-sided betting.
During Coinbase’s first day of trading, the stock fell 24% from its high when investors questioned the stock market’s valuation. At $ 64 billion today, it’s already worth more than Robin Hood and almost five times what E-Trade was sold for and when Morgan Stanley (NYSE:MRS) bought it in 2020.
Bitcoin is also experiencing growing pain. Its market capitalization of $ 1.2 trillion has already overtaken the Japanese yen (JPY) as the world’s third largest currency. Doubling it further would make BTC larger than the US dollar.
This is likely why both COIN stock and Bitcoin prices have stalled despite other altcoins pushing forward. Despite a year-to-date gain of 115% (YTD), Bitcoin still lagged behind the collective 360% increase in altcoins.
Enter Dogecoin: The Memecoin of the Generation
In the meantime, Dogecoin has gone even further. The currency has risen 2,800% since the beginning of the year.
At the heart of that surge was Dogecoin’s $ 600 million market cap – a tiny fish in today’s ocean of cryptocurrencies. That’s why it didn’t take much longer than several well-timed tweets for the currency to skyrocket. Starting from a low point makes it much easier to multiply your money quickly.
Today, Dogecoin is still around $ 21 billion – a modest size, but still a fraction of the size of Bitcoin. A DOGE surge to $ 1 – the dream of many Robinhood investors – still leaves the meme coin half the size ether (CCC:ETH-USD), the second largest player in cryptocurrency.
Why Buy $ 500 DOGE?
If you haven’t invested in Dogecoin before, buying small amounts can help you understand what newer Robinhood investors often think.
That’s because most young investors (and meme-makers) don’t buy DOGE for massive profits. You do it for fun. The Robinhood Median Account only has $ 240 in balance, so most investors will only make a few thousand at best.
Kiersten Crum, known as @ stonk.queen on Tick tock, symbolizes the generation. The young stock market expert has amassed thousands of social media followers looking for tips on how she turned $ 500 into $ 50,000.
If you own a small amount of DOGE, you too can enjoy some of the profits without worrying about what this means for your retirement savings account.
Dogecoin prices: the joy of investing
For many early Dogecoin investors, investing was always more about having fun. Profits were welcome, but secondary to the community of meme creators and other DOGE owners. In 2014, the Dogecoin community helped raise $ 184,000 to send Jamaica’s bobsled team to the Sochi Olympics, mimicking the 1993 film Cool Runnings.
Profiteers temporarily changed this in 2014 when someone on the Dogecoin subreddit was raising money for a collapsed business program.
“It’s like blood in the water, isn’t it?” said Jackson Palmer, one of the creators of Dogecoin: “[…] Sharks can […] smell it from afar. “
Since then, the coin has regained its reputation as the gateway to the often confusing world of cryptocurrencies. If you have a “doge” as your mascot, the technical details of crypto don’t seem that impossible.
Dogecoin can go up to $ 10 or go to zero. In any case, if you have invested USD 500, you will still win. Because in the end, DOGE is a day on the racetrack. Winnings are welcome, but most people are there to cheer on their favorite horse – whether they win or lose.
At the time of this writing, Tom Yeung held positions (neither directly nor indirectly) in the securities identified in this article.
Tom Yeung, CFA, is a Registered Investment Advisor committed to making the world of investing easier.