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Is Dogecoin the cryptocurrency that will save the Internet?
It's insane, it’s hilarious, and it’s all around pretty clever. With their recent meteoric rise in popularity, Dogecoins are now a fixture on social networks like Reddit and even legitimate businesses have been known to accept them as a currency at one point or another. The meme-based currency has been so wildly successful that many people are left wondering if they should choose to invest in this new form of currency.
There are entire blogs dedicated to memes and cats, so what could possibly make this currency stand out from the crowd? Dogecoins are the only currency that has successfully taken the idea of a meme and made it into an actual usable currency. The point of a meme is that it's not meant to be taken seriously, so why would you want to make a digital copy of something like that? A huge part of how Dogecoins became so popular was their viral marketing campaign that started with a simple picture of what appears to be a Shiba Inu dog.
To find out more about investing in this form of cryptocurrency, I had the chance of interviewing Timothy Loh. He started his career as an auditor and subsequently left for a revenue analyst role in a multinational corporation. Currently, he is a Finance Business Partner in a government-linked company. His job encompasses management reporting, forecasting financial models, budgeting and providing ad-hoc financial analysis to management. He is also an ACCA affiliate.
Before considering investing in cryptocurrency, you first need to understand what is an investment. The Consumer Financial Protection Bureau (CFPB), defines an investment as something that one spends money on, expecting to earn a financial return. According to Loh, traditional investments include equities, bonds, mutual funds, options, commodities and real estate. Alternatives to these traditional investments include things like fine art, antiques and cryptocurrencies. As the list of asset classes continues to grow, one is spoilt by choice. Loh says that whatever asset class an investor chooses to invest in must fulfil these basic criteria: Will the value of that asset increase over time? What causes an asset to increase in its worth over time? In simpler terms: Supply and demand. When demand exceeds supply, the value of the asset goes up and vice versa. “This essentially means that there must be a willing buyer to take up the asset at a higher price sometime in the future,” says Loh. Two methodologies that investors and traders currently use when making an informed decision on whether the share price would move north or south. First, fundamental analysis, which is determining the intrinsic value of a stock. Secondly, technical analysis, which is the art of identifying chart patterns. Going back to the first criteria – Will the value of the asset increase over time? According to Loh, “Fundamentally not yet, but from a technical analysis perspective, it’s probable.” He used Bitcoin as an example, stating that it had a meteoric rise of 700% from January 2020 till April 2021 and suffered a steep drop by 40% in May 2021 from its all-time high at about $65,000. Markets rise and fall. There is no clear-cut answer for when one should pull out or stay in. Rather, one should understand the patterns of ups and downs that take place.
Loh’s investment thesis in having crypto exposure in one’s portfolio is to take a pragmatic view, treating Dogecoin and other forms of cryptocurrency as a form of ‘digital gold’. “The idea is to hedge against the traditional financial infrastructure. If you think about it, cryptos at this juncture have limited importance to the economy and theoretically can be an uncorrelated hedge against the existing traditional financial infrastructure,” says Loh. Although historically, cryptos did crash in March 2020 along with gold and the global markets, Loh’s view is that markets can be erratic at times of uncertainty and this means there might be still a slight possibility that crypto may move inversely in future downturns as investors flock to a ‘safe haven’ for whatsoever reasons. “It is still premature to conclude at this moment, but cryptos could be treated as a form of ‘insurance’ where you buy it, keep it ‘under the bed’ and only choose to withdraw under certain circumstances,” advises Loh, stating that this amount should be one that investors are willing to lose. He goes on to say that cryptos can still have a gold-like characteristic in hedging against inflation. He explains this, saying, “When the Federal Reserve starts quantitative easing by printing money which increases the supply of money, USD would decrease by value, hence gold price rises. Supply is limited for pure gold and likewise, the market is of the view that Dogecoin is capped at 21 million units which means there is scarcity to it.” This means that Dogecoin’s value as a form of ‘digital gold’ comes from the trust people place in it. According to the US Fed, it takes 12 cents to create a $20 bill. This proves the above theory that USD19.88 actually comes from the trust people place in it.
When I asked Loh if Dogecoin will be a substantial currency in the future, he said, “My take on Dogecoin is this: until there is something fundamental to its adoption as a form of digital currency widely used globally, it will remain as a hyped-up asset class.” According to him, despite Dogecoin being hyped-up in terms of its price, it can possibly rise due to a self-reinforcing trend in inefficient markets. However, it may turn the other way when the market jumps onto a new trend – whatever it may be in the future. “Remember that trends could die very fast,” Loh says. “When there is something better out there I bet you that Dogecoin may come crashing down in a blink of an eye.” Loh adds that in the case of a price collapse, he thinks that institutional investors will be the first to jump ship.
Here is Loh’s advice to individuals who are considering investing in cryptocurrency like Dogecoin. First of all, it is important to always keep an open mind to learn about the different asset classes and markets available for investing. All investors will have their own opinions. It doesn’t mean you should take their word as gospel. Do your own due diligence and have faith in your own conviction. Before you choose to make any investments, be sure to do your own market research and research on what you are investing in, because there is a chance that you could lose your money. Another piece of advice given by Loh is that when investing, you need to learn to be rational and avoid panic buying or selling. Finally, always keep learning and never give up!
By Shaun Fong Yugendran