Dogecoin is up more than 900% in the past month, with the popular meme-based currency topping 60 cents for the first time on Tuesday.
Demand for the digital token — which was inspired by the popular meme featuring a Shiba Inu dog and has been frequently praised on Twitter by Tesla CEO Elon Musk — has continued to grow since it first surpassed the 40 cent mark in April.
But popularity and reliability don’t necessarily go hand in hand, and many have warned of the bubble potential of dogecoin.
“My guess is that [the rally] won’t last, especially for something like dogecoin which was never meant to be a payment system or a store of value,” Adam Zadikoff, COO of BRD, a popular crypto wallet that boasts more than 7 million users, tells CNBC Make It. “Yes, you can make a quick buck if you time it right, but timing the market is a terrible thing to try to do. It does not work.”
Many crypto novices don’t understand the difference between why the price of bitcoin has increased and why dogecoin is up. While bitcoin has economic incentives built in for miners to continue to create new bitcoin and there is a hard cap of 21 million bitcoin that will ever be able to exist, dogecoin has no such infrastructure. Instead, it has been fueled by excitement on Twitter and Reddit threads.
“You see the power in social media to move people to do something en masse,” Zadikoff says, adding that Musk’s many tweets about the coin have likely driven investors to it. “This is the flash-in-a-pan thing that people are getting behind right now.”
The excitement surrounding the altcoin, which until recently was worth less than a penny, will lead many latecomers to make investments that will go up in smoke, Zadikoff predicts.
“It’s great if you have some disposable income and you’re playing around and you’re having fun with it,” Zadikoff says. But he says he would never invest any money into dogecoin that he isn’t willing to lose completely. “The danger is you’re the last person holding the bag.”
Zadikoff is still pro-crypto though. Instead of dogecoin, he recommends that investors who don’t have much money to lose put their funds in bitcoin or ethereum, saying that despite their volatility, they have proven themselves to be “the smarter, safer bet” in crypto.