Dogecoin: 3 Inquiries to Say It is Time to Make investments – Motley Idiot

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Cryptocurrency is the newest phenomenon in the investment world, even if it has hit in the past few weeks. The prices of many cryptocurrencies have fallen, and Dogecoin (CRYPTO: DOGE) is no exception.

Dogecoin price has fallen more than 40% since its peak in mid-May. However, it is still up more than 12,600% in the past 12 months, making it one of the fastest growing cryptocurrencies. Compared, Bitcoin (CRYPTO: BTC) has increased by around 250% in the last year, and ether (CRYPTO: ETH) has increased by almost 1,000% over the same period.

Since Dogecoin has seen such explosive growth, it may seem like a wise investment. If cryptocurrency continues to rise at this rate, you could make a lot of money investing now.

However, Dogecoin is not the right investment for everyone and can be downright dangerous. So before you buy, make sure you have answered these three important questions.

Shiba Inu dog in front of black background

Image source: Getty Images.

1. Are you investing for the right reasons?

Getting rich in the stock market is certainly possible, but not easy. If you are only investing to become a millionaire overnight, you will likely end up disappointed (and possibly broke).

Regardless of where you choose to invest, you should only buy investments that you believe will work over the long term.

Dogecoin has grown significantly in the short term, but that growth may or may not be sustainable. When you decide to invest, you should believe in its potential and think that it will last in the long run – not because you are hoping to make money quickly.

It is currently uncertain whether Dogecoin will have staying power. Its fundamentals may not be as strong as those of bigger cryptocurrencies like Bitcoin and Ether, but its supporters still believe it can keep growing. Before investing in Dogecoin, make sure you are willing to hold onto it for the long term.

2. Can you afford to lose your investment?

All investments are subject to a certain degree of volatility, but the cryptocurrency is particularly turbulent. And of all the cryptocurrencies, Dogecoin is one of the riskier options. This means that when you buy, you should not invest money that you cannot afford to lose.

At the moment, Dogecoin is missing a real benefit. The vast majority of merchants do not accept it as a form of payment and without widespread adoption it will be a challenge to become a mainstream form of currency. In addition, there are other cryptocurrencies that have lower transaction fees and use less energy, which means that Dogecoin doesn’t have much of a competitive advantage in the industry.

Additionally, its skyrocketing price has more to do with online investors pumping up its price than it does with its fundamentals. Dogecoin has taken a similar path as companies like GameStop and AMC Entertainment Holdingswhere short-term investors inflate the stock price to sell and make a profit shortly thereafter.

For these reasons, Dogecoin is a high risk option. That doesn’t mean it’s impossible to make money off of, but make sure you are ready to potentially lose everything you invest.

3. Have you considered all of your options?

Dogecoin is one of the most famous cryptocurrencies, but it’s not your only choice. If you only invest in Dogecoin because it’s trendy, you could end up missing out on a better alternative.

There are myriad types of cryptocurrencies, but two of the biggest names in the industry are Bitcoin and Ether. Bitcoin is the most popular cryptocurrency and is also the most widely accepted by traders. With the longest track record and the most notoriety, it could be Bitcoin if a cryptocurrency were to be successful in the long term.

Ether is the second most popular cryptocurrency. The terms “Ether” and “Ethereum” are often used interchangeably, but technically, Ether is the cryptocurrency itself, while Ethereum is the blockchain technology behind it. Ethereum is one of the biggest names on the blockchain and has a wide variety of uses outside of cryptocurrency. This gives Ether an edge as it has a better chance of success if Ethereum is successful.

Dogecoin could become a real competitor in the cryptocurrency space if it continues to improve and gain supporters. But before investing, it is important to do your research and make sure that it is the best option for you.

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.

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