Dogecoin (CRYPTO: DOGE) Investors have been on a wild ride this year. Between January and May, the price soared over 15,000% to just over $ 0.74, only to lose more than half of its value just weeks later. But as of this writing, Dogecoin is still up about 6,700% over the year to date, and the price has been rising steadily over the last month.
Investors might see this as an opportunity – maybe the Shiba Inu is finally back on its way to reach the moon! However, before making any decisions, it is important to weigh the risks and weigh all options. For example, there are ways to add Dogecoin exposure to your portfolio without actually buying a cryptocurrency. Let’s dive in.
Image source: Getty Images.
The downside of Dogecoin
Dogecoin started out as a joke, but has gained a sizeable following on social platforms like Reddit and TikTok. In fact, Dogecoin outperformed earlier this year Bitcoin to become the most commonly named cryptocurrency Twitter. And of course, Elon Musk added fuel to that fire with a series of amusing tweets mentioning Dogecoin.
But here’s the problem: Dogecoin’s value is based entirely on its popularity, and its popularity is fickle. The tide can literally turn overnight, and that is exactly what happened in May. More specifically, despite having a large social fan base, Dogecoin is still worth a fraction of the total market value of Bitcoin and does not offer the programmability of other blockchains such as ether. In short, nothing substantial differentiates Dogecoin from the thousands of other cryptocurrencies out there right now.
There is another problem: Dogecoin is difficult to rate. Investors use metrics like sales, earnings, and discounted cash flows to value stocks. But Dogecoin is not a cash-generating business or an interest-bearing asset like a bond. Because of this, speculating on the future price of Dogecoin is more like gambling.
Of course, that doesn’t mean the price will go down. Someone always wins the lottery, and in a year, Dogecoin could be worth ten times what it is today. Or it could be worth less than $ 0.01, just like it was nine months ago. Regardless, it’s a very risky investment.
Image source: Getty Images.
The advantages of Coinbase
Coin base (NASDAQ: COIN) helps its clients participate in the cryptoeconomy, the burgeoning ecosystem that includes assets like bitcoin and dogecoin, as well as non-fungible tokens (NFTs), smart contracts and decentralized financial applications (DeFi).
The company serves 68 million users, including small investors, institutions and ecosystem partners. The platform offers a range of products such as analytics software, developer tools and mobile wallet services. However, Coinbase is primarily a brokerage and 85% of its revenue came from transaction fees in the most recent quarter.
In other words, Coinbase thrives when the crypto market is volatile: higher trading volume means more transaction fees and that means more revenue for the company. So if you are interested in Dogecoin – or any other cryptocurrency – Coinbase can help you take advantage of this volatility regardless of whether the price is moving up or down.
For example, consider the company’s financial performance in the first half of 2021. When Dogecoin and the broader crypto market skyrocketed in the first quarter and then crashed in the second, Coinbase saw incredible growth in both sales and profits.
|
Metric |
H1 2020 |
H1 2021 |
Change |
|---|---|---|---|
|
revenue |
$ 377 million |
$ 4.03 billion |
969% |
|
Earnings per share |
$ 0.15 |
$ 9.60 |
6,300% |
Source: Coinbase SEC filings. Note: Earnings per share are based on the diluted number of shares.
More importantly, Coinbase sets itself apart from other brokers by investing heavily in cybersecurity and regulatory compliance. In fact, it secures its customers’ funds with the largest hot wallet crime program in the insurance market. And the company currently holds $ 180 billion in assets on its platform, or 11.2% of all existing crypto assets, making it a trusted brand name. As a result, some Wall Street analysts see significant benefits for shareholders.
Here’s the bottom line: Coinbase is by no means a risk-free investment. Since going public in April, the stock has fallen over 30% from its opening price. But I think it’s less risky than buying Dogecoin outright, simply because Coinbase is a cash generating business that doesn’t depend on the success of any single cryptocurrency.
Because of this, this stock seems like a smart way to add Dogecoin exposure to your portfolio without actually buying Dogecoin.
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.
