Dogecoin, one of the prominent cryptocurrencies, has attracted significant attention due to the support from Elon Musk and the meme-loving community. However, despite having a large following, Dogecoin still faces several potential risks that investors need to carefully consider before deciding to invest.
1. Reasons to invest in Dogecoin
1.1. Dogecoin is trading much lower than its all-time high
One of the most obvious reasons to invest in Dogecoin is that its current price is significantly lower than its all-time high. In May 2021, the price of Dogecoin (DOGE) reached $0.73, the highest point in the coin’s history. However, at present, DOGE is trading around $0.16, representing a decrease of about 78% from its peak price.
Despite this substantial drop, Dogecoin still maintains a strong position in the cryptocurrency market, ranking 10th among the largest market capitalization coins. Excluding stablecoins, only 7 other cryptocurrencies have a higher market cap than Dogecoin.
If you are considering whether to invest in Dogecoin, now could be a good time. This is because Dogecoin has previously demonstrated strong price growth. While it cannot be certain that DOGE will return to its former growth or reach $1, accumulating some DOGE at this time could be a potential long-term investment. Remember that buying DOGE when the price is low gives you the opportunity to benefit if its price recovers in the future.
1.2. Elon Musk is a fan of Dogecoin
Elon Musk, despite becoming a controversial figure recently, cannot be denied his significant role in making Dogecoin one of the most prominent cryptocurrencies today. Without Musk’s strong support, it is hard to imagine that Dogecoin could have reached its current market capitalization of $23.2 billion.
Although Musk has been mentioning Dogecoin less frequently on Twitter recently, he continues to create opportunities for the Dogecoin community to grow. Occasionally, Musk shares positive signals and hints about Dogecoin’s future. One notable example is when Musk hinted that Dogecoin could become one of the official payment methods on the X platform (formerly known as Twitter) in the future.
Recently, in April, Musk posted a mysterious tweet related to Dogecoin, which excited the community and was seen as a positive sign for the coin’s growth.
2. The Dogecoin foundation is encouraging the development of Dogecoin
In fact, most people who invest in Dogecoin (DOGE) are not particularly concerned with its technical complexities. They use and invest in DOGE mainly because it has become part of the meme community and internet culture. However, it is important to note that Dogecoin provides an excellent user experience, with fast transactions and low costs. This makes DOGE an ideal tool for peer-to-peer (P2P) transactions, creating opportunities for it to become more popular within the community.
Moreover, Dogecoin has been widely accepted as a currency in online communities, particularly for rewarding internet users for humorous posts and interesting content. This highlights the potential of DOGE to sustain and grow a loyal user base.
A key factor in Dogecoin’s development is the support from the Dogecoin Foundation, which was re-established in 2021 with the goal of promoting development and protecting the Dogecoin brand. Recently, the foundation launched the “Dogecoin Core Development Fund” to encourage developers to contribute to improving the Dogecoin Core software. Developers can earn DOGE rewards for participating in this project, helping to expand the network and enhance Dogecoin’s functionality. As a result, more talented developers will be attracted to the project, allowing Dogecoin to continue progressing.
Additionally, discussions are ongoing about the possibility of transitioning Dogecoin to a Proof-of-Stake (PoS) consensus mechanism. If implemented, this would make Dogecoin more environmentally friendly, reducing energy consumption while offering opportunities to improve the scalability of the Dogecoin network.
If you’re still hesitant about investing in Dogecoin, you can try experiencing the coin first. You can use a Dogecoin faucet to receive a small amount of DOGE for free. Afterward, you can try trading with your Dogecoin wallet to better understand how the coin works before making an investment decision.
3. Reasons not to invest in Dogecoin
3.1. Dogecoin lacks creative innovation
Although there have been efforts to promote the development of Dogecoin, the fact remains that this cryptocurrency does not offer technological breakthroughs. Dogecoin is simply a cryptocurrency using a Proof-of-Work mechanism, which is quite basic and lacks smart contract functionality.
At its core, Dogecoin has little to offer beyond its appeal as a meme and its ability to spread rapidly across social media platforms. When considering technological factors, it is difficult to expect Dogecoin to compete with other cryptocurrency projects, which are investing heavily in developing and improving their products.
3.2. Dogecoin’s inflationary mechanism
One of the major issues with Dogecoin is its built-in inflationary mechanism, with 5 billion DOGE being released into circulation every year. While cryptocurrency investors often prioritize coins with a limited supply, with some coins even implementing mechanisms to gradually reduce their supply over time, Dogecoin continues to issue coins without restriction.
Although this inflationary mechanism may help maintain the security of the Dogecoin network in the long term, it raises concerns about the coin’s value, causing many investors to worry that the unlimited supply will erode its value over time.
3.3. Poor macroeconomic prospects
According to recent surveys, around 33% of economists predict that a global recession could occur this year. If this happens, it is hard to envision speculative assets like Dogecoin continuing to experience growth. During recessions, riskier assets are often severely affected as investors move their capital to safer assets, such as gold or government bonds. As a result, Dogecoin may face significant difficulties in maintaining its value in a declining global economy.
While Dogecoin benefits from strong social media presence and support from famous personalities, factors such as a lack of technological innovation, its inflationary mechanism, and unfavorable macroeconomic prospects could make it a high-risk investment. Understanding these risks is essential for making an informed decision about investing in Dogecoin.
