Why are investments in dogecoin and cryptocurrencies connected to risks and uncertainty?
When you trade dogecoin, there’s a risk that you could lose part or the entirety of your investment. Dogecoin and cryptocurrencies are unregulated assets which means that there’s no central authority to protect consumers.
If you have money placed in a bank, and the bank goes bankrupt, your money is protected by a central authority: In Denmark, that authority is called Garantiformuen , and covers deposits comparable to up to 100,000 euro.
But if you lose your dogecoins following a crypto platform going bankrupt, you’re not protected by any authorities or governments.
This is one of the things that make dogecoin an uncertain investment .
Besides, dogecoin is a very volatile asset . This means that the price on dogecoin can rise and fall very quickly. The more volatile an investment is, the more uncertain it is. The same principle applies to any other assets.
If you’re considering buying a house, you would probably be more careful with your purchase, if you knew that the price of the house could potentially lose up to 100% of its value from one day to the next. At the same time, there’s also a possibility that the house is suddenly worth 10 times more the next day.
This is kind of how dogecoin works. That’s why you should consider whether or not dogecoin is in line with your willingness to take risks.
A last point you need to consider is that dogecoin theoretically has an infinite supply. Actually, there are 5,2 billion new dogecoins produced every year, and there is no existing cap on how many dogecoins there may exist at any given time.
Tip: You can read more about how new dogecoins are being brought into circulation - or being mined - in our post “What is dogecoin mining ”.
This is in stark contrast to bitcoin , where there’s a maximum cap on 21 million bitcoins - where about 19 million was in circulation as of August 2022.
That makes dogecoin an inflationary currency, where bitcoin is an deflationary currency. This means that dogecoin will be less and less valuable over time, as there will always be new dogecoins brought into circulation. As long as the supply is bigger than the demand, it will result in a deterioration of dogecoin’s value.
However, it could happen that the demand of dogecoin is so large that the value rises anyway. That happened after Elon Musk and other celebrities talked positively about dogecoin in public, for example.
Tip: Read more about dogecoin’s history and how the crypto actually works here.
Oppositely, a cryptocurrency such as bitcoin will only become more valuable, because there’s a limited supply, which only becomes more limited as the remaining bitcoins are being mined. As long as the demand exceeds the supply, it will result in an increase of bitcoin’s value.