Dogecoin (CRYPTO:DOGE) has experienced a phenomenal run over the past few months. Its price is up by more than 5,500% since the beginning of the year. Over the past 12 months, it has shot up by more than 12,800%.
That type of growth is unmatched by Dogecoin’s competitors. Since the beginning of the year, Bitcoin is up by around 37%, and Ether‘s price has increased by around 250%.
Despite its monumental gains, however, Dogecoin has had a rough month. It has lost nearly half its value in a matter of weeks, with its price sinking by nearly 44% since reaching its peak on May 10.
Volatility is normal in the stock market, and many investments are able to recover from downturns. But we’re in uncharted territory with cryptocurrency. Will Dogecoin be able to recover, or is it doomed to collapse? Here are three things you need to know.
1. Why Dogecoin surged in the first place
First, it’s important to understand what caused Dogecoin to experience such explosive growth. The cryptocurrency has been around since 2013, but it rose to fame only a few months ago. So why the sudden interest from investors?
It’s primarily due to retail investors artificially inflating its price to try to make money quickly.
Dogecoin does not have the strongest fundamentals. It has little to no utility right now, and its competitors outshine it in several areas. But it’s an inexpensive investment (around $0.31 per token, as of this writing), so it’s easy for investors to load up on it and drive up the price. Then once the price has increased substantially, investors can sell their tokens and make a quick buck.
Dogecoin’s price increases have also been fueled by celebrities like Elon Musk and Mark Cuban promoting the cryptocurrency online. This has encouraged more investors to jump on the bandwagon, driving up the price even further.
2. Its price surges might not be sustainable
Because Dogecoin’s price surges don’t align with its fundamentals, it might not see sustainable growth. This doesn’t mean that its price won’t bounce back. But if it does, it will likely be because retail investors are still trying to inflate its price — not because it is a strong investment.
For that reason, Dogecoin will still likely experience extreme volatility no matter what happens. If retail investors continue to buy the cryptocurrency, its price could climb. But as soon as those investors decide to move on to a different stock and dump Dogecoin, its price will likely plummet instantly.
This makes it an incredibly risky investment. All investments are unpredictable to a certain extent, but Dogecoin is especially erratic. Whether its price bounces back or not depends on how retail investors feel about it, and that has little to do with its strength as a cryptocurrency.
3. It needs a competitive edge to stick around
There are other cryptocurrencies out there that are much stronger than Dogecoin. Bitcoin, for example, has more…