Considering a Shift from Bitcoin to Dogecoin: Worthy Investment or Not?
Considering a Shift from Bitcoin to Dogecoin: Worthy Investment or Not?
Bitcoin's (BTC 2.52%) price has significantly surged over the past year, nearing its peak. Key factors contributing to this rise include the approval of its first spot price exchange-traded funds (ETFs) in January, its halving in April, two interest rate cuts, and Trump's election win.
On the other hand, Dogecoin (DOGE -0.21%), started in 2013 as a satirical take on Bitcoin and named after a Shiba Inu dog, saw an enormous increase of over fourfold in the past year. Previously, Dogecoin's price swings were often driven by Elon Musk's unpredictable tweets about the cryptocurrency. In 2022, Musk even accepted Dogecoin as a payment option for specific products at Tesla.
Dogecoin's latest rally was mainly ignited by Trump's election victory. The hype intensified after Trump mentioned appointing Musk and Vivek Ramaswamy to lead the planned Department of Government Efficiency (DOGE), intended to reduce unnecessary government spending. This announcement, coupled with Trump's pro-crypto stance, gave Dogecoin an edge over Bitcoin. So, should investors opt for this meme coin over Bitcoin today?
Comparing Dogecoin and Bitcoin
Dogecoin was developed using Litecoin's open-source code, stripped from Bitcoin's blockchain. Like Bitcoin and Litecoin, Dogecoin employs the energy-intensive proof-of-work (PoW) consensus mechanism for mining. However, to distinguish itself, Dogecoin developers introduced a new hashing algorithm called Scrypt, which utilized less power and improved transaction speeds.
This upgrade caught the attention of supporters, who formed the "Doge Army," and high-profile investors like Musk, Cuban, Snoop Dogg, and Jonas. As a result, Dogecoin's price soared, reaching $0.73 on May 8, 2021, marking a 47,279% rise from its initial trading price of $0.001540753 on Jan. 23, 2014. That surge could have multiplied a $10,000 investment into $4.7 million.
Dogecoin's flaws
However, that investment is now worth approximately $2.4 million. Two major challenges hindered Dogecoin's growth towards becoming the next Bitcoin or Ethereum. Firstly, Dogecoin is an inflationary token, not featuring a supply cap. The current circulation consists of 150 billion Dogecoins, with a supply increase of about 10,000 tokens every minute. Bitcoin, in contrast, has a fixed supply of 21 million tokens, with 19.8 million already mined. This scarcity gives Bitcoin more similarities to physical assets than Dogecoin.
Secondly, Dogecoin lacks native support for smart contracts, a tool used to create decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. Proof-of-stake (PoS) blockchains such as Ethereum utilize smart contracts, which attract developers due to their popular and substantial developer communities. Furthermore, PoS tokens can also be "staked" on the blockchain, earning interest-like rewards. Shiba Inu, a Dogecoin parody, is an Ethereum-based PoS token that supports staking and smart contracts.
Simply put, Dogecoin boasts faster transaction speeds than Bitcoin, but its inflationary nature limits its potential to become as scarce as Bitcoin. Meanwhile, its lack of smart contract support restricts Dogecoin's appeal towards developers, driving them towards Ethereum or other PoS blockchains.
Dogecoin vs. Bitcoin - Is Dogecoin a viable alternative?
Dogecoin may be attracting attention, but it's still trading considerably below its all-time high because it hasn't addressed its primary problems. It will likely lose most of its post-election gains once the attention shifts.
Meanwhile, Bitcoin focuses on becoming a digital alternative to gold, catering to many investors. Scheduled halvings, which reduce mining rewards by half every four years, contribute to Bitcoin's supply tightening and price increase. Additionally, more institutional investors may opt for Bitcoin, and more inflation-burdened countries could adopt Bitcoin as a national currency, making Bitcoin an appealing long-term investment.
In the realm of finance and investing, many individuals are debating whether Dogecoin or Bitcoin is a better investment option. While Dogecoin's fast transaction speeds and high-profile celebrity endorsements have driven its price surge, its inflationary nature and lack of native smart contract support limit its potential compared to Bitcoin's scarcity and developer appeal.
Given that Dogecoin's value may be volatile due to its inflationary nature and reliance on publicity, investors might want to consider the long-term potential of Bitcoin, which focuses on becoming a digital alternative to gold and catering to many investors. Its scheduled halvings and increasing institutional interest make Bitcoin an appealing choice for those looking for a stable store of value or long-term investment.