Dogecoin Is Down 46%. Should You Buy the Dip?

It has had several stints when its value has soared since then

With such a significant fall, some investors may be wondering if now is a good time to buy Dogecoin on the dip

Here are three reasons why I think that'd be a mistake

Image source: Getty Images

There's no limit on how many Dogecoins can be mined Scarcity is one of the biggest factors in driving up the value of nearly anything, from rare baseball cards to diamonds

But if a nearly unlimited amount of something can be duced, scarcity doesn't exist, and values are ly to, eventually, fall

That's why it's blematic that there's no limit to how many Dogecoins can be mined

Even if its value soars over a period, as more coins are mined, crypto investors may be less inclined to buy the coin, which could cause its value to fall

Both cryptocurrencies may have a certain amount of speculation baked into their prices, but at least Bitcoin is, and always will be, a rare digital asset

Dogecoin's value is deeply rooted in investor sentiment in nearly anything, including stocks, isn't an exact science

The hope when you buy a stock is that the company will perform well over time -- selling lots of its ducts and services and making a fit -- so the value of the company increases and pushes the price higher

The other side to this is that investor sentiment will also be mixed into the price of that stock, for better or worse

This is why you'll see a stock price fall after a company reports strong quarterly revenue and earnings, simply because investors hoped the financial performance would be even better

The blem with Dogecoin is that its value is nearly completely reliant on investor sentiment

Sure, the crypto has some limited real-world use cases for completing transactions quickly, but mostly, its price rises and falls based on how investors feel

While almost all investments can move up or down in the short term based on how investors feel, over the long term, they tend to rise and fall based on concrete metrics ( sales and earnings)

Since Dogecoin has limited real-world applications and was created as a joke, its value is almost entirely dependent on the constantly shifting whims of online investors

Dogecoin doesn't have any strategic development Established cryptocurrencies Bitcoin and Ethereum have robust developer ecosystems that manage and their code databases

But because Dogecoin started as a joke, its original developers abandoned the ject years ago, and it's now d sporadically by volunteers

That means there's no strategic development in place for maintaining, imving, or increasing the adoption of Dogecoin's blockchain

Compare that to Bitcoin, which has a strict review cess for, and Ethereum, which has thousands of developers that help make core

While all of these cryptocurrencies have differing development cesses, Dogecoin is essentially stagnant, while Bitcoin and Ethereum have very intentional, even if slow, changes

Dogecoin's future applications are limited, and there's little reason to believe that Dogecoin will ever rise above its meme coin

The verdict: Don't buy Dogecoin I understand the draw of an investment that has skyrocketed in price in the past and having hopes that it could do the same again

But buying stocks or cryptocurrencies on that feeling is gambling, not

Dogecoin has little real-world application, it can be mined year after year, and its value is dependent on how investors feel the coin at any given moment

This is all a recipe for disaster when it comes to, which is why it's best to stay away from this coin. (Cute dog, though. ) Chris Neiger has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Bitcoin and Ethereum

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