3 Reasons Dogecoin Might Sink – and 1 Reason It Might Go to the Moon

Dogecoin (CRYPT: DOGE) has been a phenomenon in the world of cryptocurrency. Its price has soared more than 4,500% since the start of the year and is up nearly 11,000% over the past 12 months.

Even Dogecoin’s biggest crypto competitors have not been able to achieve such explosive growth. The price of Bitcoin (CRYPTO: BTC)for example, has “only” increased by about 300% over the past year, and Ethereum (CRYPTO:ETH) is up about 860% over the same period.

However, despite the meteoric rise of Dogecoin, it is an incredibly risky investment. There are many reasons it can fail, and one reason it can thrive.

Image source: Getty Images.

Why Dogecoin May Sink

1. It lacks real-world utility right now

For a cryptocurrency to be successful in the long term, it must have real-world utility.

Currently, Bitcoin is the most widely accepted cryptocurrency by merchants, and very few sellers accept Dogecoin as a form of payment. Many businesses are still on the fence about cryptocurrency, in general, and those that embrace it are more likely to accept Bitcoin than Dogecoin.

2. It doesn’t have much of a competitive edge in the industry

If Dogecoin is to be widely accepted as a payment method, it will need to have a competitive edge. However, there is not much that sets Dogecoin apart from its competitors.

Bitcoin has the most name recognition and first-mover advantage as it is one of the oldest cryptocurrencies. Because this cryptocurrency attracts the most attention, it is more likely to be accepted by sellers.

Ethereum also has an advantage because its blockchain technology hosts a wide variety of projects. Non-fungible tokens (NFTs), for example, use the Ethereum blockchain, as does the decentralized financial movement. Ethereum’s native token, Ether, is also the second most popular cryptocurrency behind Bitcoin.

Dogecoin, on the other hand, doesn’t have much to do except its fans. While some proponents tout Dogecoin’s low transaction fees, there are other cryptocurrencies that have lower fees than Dogecoin. Without a competitive edge, Dogecoin will struggle to survive in the long run.

3. There is very little barrier to entry into the crypto space

Anyone can create a new cryptocurrency, so the barrier to entry is almost non-existent. In fact, Dogecoin itself was created by two software engineers as a joke in response to the wild speculation surrounding cryptocurrencies in 2013.

Because Dogecoin isn’t widely accepted by vendors and doesn’t have much of a competitive edge in the crypto market, it wouldn’t take much for a new cryptocurrency to overtake it.

Why Dogecoin Could Go Big

1. He is hugely successful

Despite the fact that Dogecoin has shaky fundamentals, it has managed to build quite a fan club. And although its value has dropped significantly over the past few weeks along with many other cryptocurrencies, it has still increased by nearly 400% over the past three months.

Dogecoin Price Chart

Dogecoin price data by YCharts.

Part of the reason Dogecoin has achieved such explosive returns is that retail investors have artificially boosted its price. Famous billionaires like Elon Musk and Mark Cuban have also helped fuel Dogecoin’s rise to the top by publicly voicing their support for the cryptocurrency.

These factors indicate that Dogecoin is a short-term investment, not a long-term one. However, since Dogecoin now enjoys such notoriety, it could gradually gain wider acceptance, which could give it a real chance to stay competitive.

Keep in mind that this is a big “if” and chances are Dogecoin won’t be able to keep up with its competitors over the long term. Before investing, think about the level of risk you can tolerate.

While Dogecoin could possibly go to the moon, it’s still a high-risk investment. And for many investors, it’s best to stay away for now.

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Katie Brockman owns shares of Bitcoin and Ethereum. The Motley Fool owns stocks and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Wesley V. Finley

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