THE price of Dogecoin has bounced back this morning after a drastic drop yesterday but experts are warning investors should be cautious about investing in the “joke” cryptocurrency.
Dogecoin hit a record high of $0.68 on May 5 but fell 11% yesterday before rising back to $0.62 this morning, giving it a market capitalisation of $82 billion.
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The price moves show just how volatile the cryptocurrency can be and the dangers of investing in it.
Dogecoin’s value is already up 3% since the early hours of this morning but is down 8.8% from its all-time high, according to data from Coindesk.com
Analysts have warned that Dogecoin’s surge is a bubble that has to burst.
Erica Stanford, founder of networking company the Crypto Currency Club, says investors may be attracted to Dogecoin as it is cheaper than Bitcoin but warns the price swings make it “mega risky.”
5 risks of crypto investments
THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
One Dogecoin is worth around $0.62 this morning whereas a single Bitcoin is more than $56,000.
Stanford told The Sun: “Dogecoin is fun and cool but it was designed as a meme.
“It doesn’t have any real use or inherent value other than a bit of fan currency with a loyal fanbase.
“It’s gone up too much to be a safe buy now.
“Many people will be looking to cash out so I would expect big sell-offs.”
Nigel Green, chief executive of advisory group deVere, which has its own crypto app, said Dogecoin is less attractive than more established cryptocurrencies such as Bitcoin and Ethereum.
He said: “It is difficult to compare Dogecoin with the likes of Bitcoin, which runs on ground-breaking tech and has a limited supply giving it scarcity value, amongst other valuable attributes.
“Ethereum is solving real-world issues and providing in-demand business solutions.
” For these reasons, amongst others, they are attracting that monumental institutional investment.”
Cryptocurrencies such as Dogecoin, Bitcoin and Ethereum have enjoyed a price surge in recent days after exchange website Coinbase listed on the Nasdaq stockmarket.
Dogecoin’s price has also been boosted by tweets from Tesla founder Elon Musk and interest has increased after trading platform eToro said users could buy and sell the cryptocoin on its website.
There is no guarantee of making money when buying cryptocurrencies.
They are highly volatile and you could lose all your money plus there are a lot of scammers who try to steal money by luring people into crypto investments.
Make sure you know the risks of investing in cryptocurrencies and that you can afford to lose any money you put in.
What is Dogecoin?
Dogecoin may only be attracting interest now but it has acually been around since 2013.
The cryptocoin, which has the image of a Shuba Inu dog as its logo, was launched by software engineers Jackson Palmer and Billy Markus as a “fun version of Bitcoin.”
Its value jumped 300% in its first two weeks after China banned banks from investing in cryptocurrencies, according to Investopedia and rose during the crypto bubble of 2017 before dropping in 2018.
A single coin was worth just $0.005405 at the start of 2021 but its price has skyrocketed to above $0.65 in recent weeks.
Why is the Dogecoin price going up?
Dogecoin’s price has been boosted in recent months after getting backing from high profile celebrities.
Tesla founder Musk has often tweeted about the cryptocurrency which has stoked interest and sent the price up.
Other famous people including Snoop Dogg and investor Mark Cuban have also tweeted their support.
Reddit users also tried to push the value of the virtual coin up to $1 in January as part of an attempt to mirror a share surge in heavily shorted companies like GameStop earlier this year.
The latest surge coincided with eToro adding Dogecoin to its trading platform for its 20 million customers to buy and sell.
Simon Peters, cryptoasset analyst for the platform, said: “Dogecoin was created as a way to tip content creators on social media, and is known as an open-source digital currency.
“It was developed by software engineers who designed it to be one of the fastest blockchain networks to transact on.
“Fast transactions, very low fees and high transaction capacity on the underlying network could contribute to see it become a digital currency long-term, although it’s worth noting that the Dogecoin blockchain has seen significantly less development than larger blockchains such as Ethereum and Bitcoin.”
He said investors should only hold a small amount of Dogecoin as part of a diversified portfolio due to its volatility.
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