Dogecoin Investment Guide: Getting Started And Strategies

Dogecoin is a cryptocurrency that was created as a joke based on a popular internet meme. Despite its lighthearted origins, it has gained a passionate following and is now one of the top 10 cryptocurrencies by market capitalisation.

If you are considering investing in Dogecoin, it is important to remember that it is a highly volatile asset. Its value is largely driven by social media hype and the actions of high-profile supporters such as Elon Musk.

There are several ways to buy Dogecoin. The simplest is through a cryptocurrency exchange such as Coinbase, Kraken or Binance. Alternatively, you can use a decentralised exchange or peer-to-peer marketplace, or even exchange other cryptocurrencies for Dogecoin.

Before investing, it is recommended that you research the different types of crypto wallets and choose an exchange that suits your needs and operates legally in your jurisdiction.

Dogecoin's value and volatility

Dogecoin is a highly volatile and unpredictable asset. Its value has fluctuated significantly since its creation in 2013 as a joke based on a popular meme. Dogecoin's highest price was about 74 cents in May 2021, before dropping to about 14 cents by the end of that year. As of July 2023, Dogecoin is trading for a little over 7 cents. Its market capitalization, as of March 2023, was more than $10 billion.

Dogecoin's price tends to move in concert with other cryptocurrencies. For example, in early 2022, when there were concerns about the Federal Reserve hiking short-term interest rates, Dogecoin's price declined by approximately 25% in about a month, mirroring declines in Bitcoin and many other coins. News and social media coverage can also significantly impact Dogecoin's price. For instance, in 2021, Dogecoin's price doubled in less than a month after Elon Musk announced he would host Saturday Night Live, sparking rumours that he would mention the coin on the show. However, when Musk instead referred to Dogecoin as "a hustle" during the show, its price plummeted by nearly 30%.

Dogecoin's volatility is driven by several factors, including its unlimited supply. For Dogecoin's price to increase or stabilise, investors must continually purchase more coins. Otherwise, the rapid rise in the supply of DOGE leads to inflation, diminishing the value of the coins already in circulation. This dynamic is unique to Dogecoin, as other major cryptocurrencies like Bitcoin have caps on the number of coins issued, creating scarcity and helping to retain their value.

Dogecoin's price is also influenced by its position as a meme coin. Its value is derived in part from its meme status and the attention it receives on social media platforms like Reddit and Twitter, where it has amassed a dedicated following. Additionally, endorsements from prominent figures like Elon Musk, Mark Cuban, and Snoop Dogg have contributed to Dogecoin's volatility and price surges.

Dogecoin's average transaction cost is relatively low, typically under 10 cents, making it one of the more affordable cryptocurrencies on the market. However, it is important to remember that Dogecoin is a risky and volatile investment. Financial planners generally recommend investing no more than 3% to 5% of your money in highly volatile assets like cryptocurrencies.

Where to buy Dogecoin

Dogecoin is a cryptocurrency that can be purchased on a crypto exchange, a digital marketplace where people buy, sell, and swap cryptocurrencies. There are two types of crypto exchanges: centralized and decentralized. Centralized exchanges are controlled by a central authority and require users to create an account to trade cryptocurrencies. Decentralized exchanges, on the other hand, operate on a decentralized blockchain network, meaning they are not controlled by a central authority. Instead, they use smart contracts and blockchain technology to facilitate peer-to-peer trades.

When choosing a crypto exchange to buy Dogecoin, it is important to consider factors such as security, fees, the number and quality of supported cryptocurrencies, and wallet quality and safety. Some popular centralized exchanges that offer Dogecoin include Coinbase, Binance, Kraken, and Gemini. Robinhood, SoFi, Webull, and eToro are examples of investment apps that also provide access to Dogecoin.

Before purchasing Dogecoin, it is essential to understand the risks involved. Dogecoin is known for its high volatility, and its price is largely driven by social media movements and hype. As with any investment, it is crucial to do your own research and only invest what you can afford to lose.

Payment options

Before you can start trading cryptocurrencies, you must deposit money into your exchange or brokerage account. Most exchanges will allow you to deposit money from a checking or savings account. Some also accept wire transfers, PayPal transfers, and credit or debit cards, depending on the exchange's policies and your jurisdiction.

A few exchanges let you use a credit card to buy Dogecoin, but it's important to be aware of the risks. The transaction will be treated as a cash advance by the bank, resulting in high-interest rates and additional fees.

If you already own cryptocurrency, you may be able to trade it for Dogecoin. However, not all cryptocurrencies can be exchanged for Dogecoin, and each platform is different in terms of what's allowed. Make sure the platform you're using allows you to pair Dogecoin with another cryptocurrency before placing a trade.

Dogecoin's future

Dogecoin's price history demonstrates its unpredictable nature. Those who invested before its surge in popularity in late 2020 saw their holdings increase by over 7000% to 74 cents by mid-2021. However, by the end of that year, its price had dropped to less than 14 cents, and it currently hovers around 7 cents.

Despite its volatility, Dogecoin has a dedicated community and has gained mainstream acceptance, with some merchants and businesses accepting it as payment. Additionally, the Dogecoin community has supported various charitable causes and individuals.

When considering investing in Dogecoin, it is crucial to remember that it is not backed by any substantial assets. Its value is primarily driven by social media movements, hype, and the actions of high-profile supporters like Elon Musk. Unlike other cryptocurrencies, there is no limit on how many Dogecoins can be mined, which can drive down its price.

Experts generally recommend investing no more than 3% to 10% of your portfolio in cryptocurrencies due to their risky and unpredictable nature. It is essential to do your research, understand the risks, and only invest what you can afford to lose.

Risks of investing in Dogecoin

Dogecoin is a risky investment due to its high volatility and unpredictable nature. It is important to understand the risks before investing in Dogecoin or any other cryptocurrency. Here are some key risks to consider:

Volatility and Price Fluctuations

Dogecoin's price is highly volatile and prone to extreme fluctuations. Its value can increase or decrease rapidly in a short period, as seen in its surge and subsequent slump in April 2021. Dogecoin's price is influenced by various factors, including social media trends and hype, and the actions of high-profile individuals like Elon Musk.

Unlimited Supply

Dogecoin, unlike Bitcoin, has an unlimited supply. This means that its price depends on continuous investor demand. If demand slows down, the increasing supply can drive down the value of Dogecoin. The lack of scarcity also makes it challenging to place fundamental value on Dogecoin compared to finite cryptocurrencies.

Regulatory and Consumer Protection Risks

Cryptocurrency investments, including Dogecoin, often come with very high risks and are not subject to the same regulatory protections as traditional investments. The Financial Conduct Authority (FCA) has warned that consumers investing in cryptocurrencies should be prepared to lose all their money. There is also a lack of protection from the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) if things go wrong.

Complex and Unregulated Nature

The complexity of cryptocurrency products and services can make it challenging for investors to fully understand the risks involved. Additionally, the lack of regulation beyond anti-money laundering requirements means that firms may overstate returns or understate the associated risks.

Security and Storage Concerns

Storing Dogecoin or any other cryptocurrency securely is essential, but it comes with risks. While some investors choose to keep their crypto assets in exchange-provided wallets, these are more susceptible to crashes or hacks. Alternative options include hot wallets (always connected to the internet) and cold wallets (physical hardware disconnected from the internet). However, cold wallets can be more expensive and carry the risk of losing access if passwords are forgotten.

High Transaction Fees

While Dogecoin's average transaction cost is relatively low, buying and selling it on cryptocurrency exchanges may incur trading fees. These fees can vary across exchanges, but they add to the overall cost of investing in Dogecoin and can eat into potential profits.

Frequently asked questions