If you want a cryptocurrency that has performed extremely well and is likely to continue to outperform other cryptos, look at Dogecoin (CCC:DOGE-USD). Here is a simple example. So far this year, Dogecoin, at $0.072, as of midday April 12, is almost 12 times its price of $0.0057 at the end of Dec. 31. 2020. That represents a gain in value of 1163% in that time frame.
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By contrast, Bitcoin (CCC:BTC-USD) is up just 104% year-to-date. The premier cryptocurrency ended 2020 at $29,374 per Bitcoin but is now just over $60,000. Even Ethereum (CCC:ETH-USD) is up just 193% year-to-date from $730.37 at end of last year to $2,142.79 today.
In other words, these two well-known cryptocurrencies also have had a stellar performance this year, at least compared to stocks, bonds, and gold. But they have not risen anywhere near as much as Dogecoin.
Reasons for Dogecoin’s Outperformance
Some of this could be due to the fact that Dogecoin has a much smaller market capitalization than either Bitcoin or Ethereum. For example, CoinMarketCap.com reports that Dogecoin is the 17th largest crypto vs. first and second for BTC and ETH cryptos. Dogecoin has a market capitalization of $9.2 billion. This compares with $1,122 billion for Bitcoin and $247.27 billion for Ethereum.
In other words, it might be somewhat harder for larger cryptos to rise as fast as a smaller crypto such as Dogecoin. This is also sort of borne out by the trading volume. CoinMarketCap.com indicates that in the past 24 hours, 4.6% of Bitcoin’s market cap was traded.
In contrast, 35% of Dogecoin’s market value was traded in the last 24 hours.
Another reason is the difference in supply, not just demand. For example, Dogecoin releases 5 billion Dogecoin each year to be mined on a continuing basis. This is basically a slightly inflationary supply constraint. I wrote about this in my last two articles on Dogecoin.
By contrast, Bitcoin has a deflationary supply structure. It has a limited number of Bitcoin (21 million) that can be mined in its lifetime. If Dogecoin’s outperformance continues as its market cap rise, this will tend to bring more credence to inflationary supply cryptos.
The last reason for Dogecoin’s outperformance is that one group owns a large portion of Dogecoins. As I discussed in my last article, the Wall Street Journal reported on Feb. 17 that one individual owns as much as 28% of the total supply of Dogecoins.
What To Do With Dogecoin
Most people who are considering investing in Dogecoin should do so only as a diversified position among other crypto coins. Don’t forget, volatility on the upside can just as easily translate into huge downside risk.
For example, setting the dollar value of Dogecoin as a percentage of the total cryptocurrency exposure one wants to have is a good diversification policy to follow.
I did not want to bring this up, but I suppose it cannot be avoided. A final major reason for the volatility in Dogecoin is what I would call the Musk effect. He has been very vocal about supporting the cryptocurrency – but sometimes with a sort of tongue-in-cheek slant to his remarks. Lately, his tweets about Dogecoin seem to be more serious. Barron’s magazine has taken note of this. They pointed out on March 15 that Musk had spent a good deal of the weekend tweeting about Dogecoin.
What I am saying is don’t buy Dogecoin just because Elon Musk is tweeting about it. For all we know, he is the person that owns 28% of the Dogecoin and is talking up his book.
In any case, I have pointed out the various reasons why people are buying Dogecoin. These reasons will tend to continue as long as the crypto coin keeps rising in value. In that sense, it will outperform. But look out below. It could also outperform on the downside as well.
On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.