6/8/2021 12:00:00 AM

Is Dogecoin a man’s best friend?


Have you heard about the cryptocurrency Dogecoin? Pie Funds CEO and Founder Mike Taylor explains the latest on Dogecoin and cryptocurrencies.

Dogecoin is named after a popular meme featuring a shiba inu dog and was launched in 2013. Dogecoin, along with other cryptocurrencies, have increased in value and I regularly get a lot of questions around them as an investment.

I’ve been outspoken about my view in the past. I don’t think central banks will allow Bitcoin or other independent cryptos to become anything more than another commodity that is priced in USD. Central banks need to control the financial system (otherwise chaos will ensue) and they simply cannot allow another asset to take over as the main medium of exchange. They would then be unable to regulate the money supply, availability of credit, or interest rates. Let’s not forget that creating cryptocurrency coins uses huge amounts of energy, it’s terrible for the environment. 

What happened in May?
The volatility in global financial markets during May was caused by a shake-out in cryptocurrencies, which accelerated as both the US and China sought to clamp down on the significant growth in financial fraud via Bitcoin. Cybercrime is on the rise and Bitcoin is the payment du jour for criminals. However, they might be regretting taking Bitcoin of late, with the cryptocurrency down close to 50% on the highs it reached in April of US$64,000. At the time of writing, the price was down to US$36,000. Ouch.

What about Dogecoin?
In May, not even Elon Musk could save the crypto world, with his own company Tesla announcing they would no longer be accepting Bitcoin as a method of payment, citing significant ESG concerns (a reminder the “mining” of Bitcoin uses as much energy as Argentina). However, the Dogefather as he is called, still continued with his satirical tweets about Dogecoin. Once considered a joke, Dogecoin now has a market value of over US$50b! It’s ridiculous, and I think it will go to zero but if you still think this isn’t a bubble then reading my view is probably going to do nothing to dissuade your cognitive dissonance. 

If you like our four-legged canine friends and want to invest in that theme you’d be better suited with sticking to a listed company, such as the ones we hold, than buying Dogecoin. 

What is cryptocurrency?
Digital currency (or cryptocurrency) were created as an alternative to government-issued currencies. There are no physical ‘coins’. They are created, traded and stored within a computer system called blockchain technology. It is not legal tender and often is used in illegal transactions. One Bitcoin in January was worth about $US36,000, but this price fluctuates widely. 

What type of investment is it?
Cryptocurrency is referred to as a speculative investment, meaning it involves a high degree of risk and the price fluctuates. Speculative investment is usually done with a short term focus, compared to a long-term investment where the value of the investment is expected to rise over the long term. Another example of speculative investment is property flipping, where an investor buys a property in a hot market, then resells it a short time later to try to earn a quick profit.

I’m keen to invest, what risks are involved?
  • Cryptocurrencies are highly volatile. The value can rise and fall quickly and dramatically.
  • Cryptocurrencies aren’t regulated in New Zealand, meaning there is no help when things go wrong for a cryptocurrency investor.
  • Hacking, fraud and scams can be a big problem. Cryptocurrency platforms and investors are often a target of cyber crime. If your cryptocurrency is stolen, it’s unlikely you’ll get it back. 

More information: Financial Markets Authority: Cryptocurrencies 

Investopedia: What is a cryptocurrency?

Information is current as at June 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.