1 Serious Mistake to Avoid With Dogecoin Right Now

Dogecoin (CRYPTO: DOGE) has the uncanny ability to capture investors' attention for years on end. It is, after all, the original meme coin and all that entails.

But don't let that any renewed hype fool you. There's a serious mistake that many investors are vulnerable to with Dogecoin right now: Buying it. Let's walk through why that's something you need to avoid.

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The math is working against you from minute one

It's obvious that every asset you plan to hold for the long term needs some mechanism for accruing value. That mechanism might be scarcity, or a killer business model, or a monopoly of some kind. Dogecoin doesn't have any of those qualities.

One modest problem is that its total supply outstanding is perpetually increasing. The protocol mints roughly 5 billion new coins every year without fail. With about 169 billion coins already circulating, that translates to an annual supply expansion rate near 3%.

Getting 3% of your value diluted each year is, all things considered, not catastrophic. The issue is that there isn't any countervailing force creating so much demand for the coin that its price could rise faster than the rate of dilution.

There's almost nothing that requires buying Dogecoin such that it would have value -- nothing except getting the thrill of a gamble on its chances of going to the moon. Still, locking up your capital in Dogecoin incurs an opportunity cost, not to mention the guarantee of constant dilution, so it's a significant mistake to buy it.

Hype is not a thesis

If the structural picture is that bleak for this coin, why does Dogecoin keep resurfacing?

It's exceptionally good at generating excitement once every few years, and that causes people to flock to buy it. A single Elon Musk social media post in early 2021 pushed the coin's price up 80% in a day. Of course, that move ended up reversing hard, which is also typical of Dogecoin.

The temptation is to think you can catch the next wave by getting in early enough. That temptation will persist for as long as you pay attention to it. But by the time enthusiasm about the coin is widespread enough for you to hear about it, the biggest gains have already been captured. Unless you're patient enough to lock your capital up for years (which, again, is a bad decision), there's little to no chance you will have the presence of mind to buy it when the price is low and nobody else is interested.

So don't take the bait here. There's simply no investment thesis for buying Dogecoin.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.