There’s been a lot of public debate in latest months about Dogecoin (CCC:DOGE-USD). Is Dogecoin a forex or a safety? Is it funding or a nasty funding? Does Dogecoin severely compete with Bitcoin (CCC:BTC-USD), or is it only a social media meme?
As we speak, I’d like to try one other essential query. Is Dogecoin little greater than a traditional pyramid scheme?
What Is a Pyramid Scheme?
I’ll begin out by defining a pyramid scheme and discussing a few of its widespread traits. A pyramid scheme is an funding mannequin that revolves round early members recruiting new members. The funds from the brand new members are then used to generate returns for the early members. To generate income on the scheme, a participant wants extra traders to affix the scheme after they purchase in.
Pyramid schemes usually contain merchandise or investments which have little or no worth. New traders are sometimes recruited by members touting the massive returns of the early traders. In reality, the early traders in a pyramid scheme do make a ton of cash.
But it surely’s a zero-sum recreation, and that cash comes straight out of the pockets of later traders. And naturally, the pyramid scheme mannequin is in the end unsustainable. There’s not an infinite variety of new traders to recruit to proceed to generate returns for the sooner traders.
Pyramid scheme members usually promise unrealistically excessive returns that ought to appear too good to be true. Individuals often challenge returns which are far past the roughly 8% to fifteen% historic annual returns of the S&P 500.
Dogecoin As a Pyramid Scheme
Dogecoin doesn’t generate money circulation. It doesn’t pay curiosity or a dividend. It has no distinctive utility in comparison with different prime cryptocurrencies. The way in which to generate income in Dogecoin is to purchase in after which instantly begin shilling for its worth to rise by posting memes on social media and telling associates, family and passers by that it’s going to the moon.
The one means the worth of Dogecoin goes increased over time is that if extra individuals or establishments purchase in. Early Dogecoin traders have already made a killing. It’s worth is up greater than 13,300% prior to now 12 months alone. But when the Dogecoin group doesn’t maintain recruiting extra patrons, the worth will stagnate or drop decrease.
A share of inventory represents fractional possession of an organization. In concept, that firm will develop and evolve over time, and that fractional possession stake will rise in worth. However Dogecoin isn’t rising or creating any worth regardless of how lengthy you wait. Even long-term Dogecoin traders want extra patrons to affix in to drive the worth increased.
Dogecoin Creator’s Take
Dogecoin creator Billy Markus has overtly acknowledged that he created the cryptocurrency in about two hours as a joke.
Markus additionally just lately stated Dogecoin and the remainder of the cryptocurrency market is pushed virtually fully by the higher idiot concept. The higher idiot concept is the concept solely fools are shopping for a selected funding, however they’re doing it with the hope that much more silly individuals will finally purchase the funding again from them at a better worth.
“I agree with the higher idiot concept driving most of crypto costs, however I’m truthfully questioning what % you assume any crypto is bought from utility vs higher idiot concept,” Markus tweeted. “From my viewpoint, it’s about 99.99% higher idiot concept.”
Easy methods to Play It
The excellent news for Dogecoin traders is that loads of individuals all through historical past have gotten wealthy off pyramid schemes. The bottom line is to be an early investor. Anybody who invested even a reasonable amount of cash in Dogecoin one 12 months in the past and held on to right this moment is probably going already wealthy.
There is just one query that issues for Dogecoin traders right this moment. Are we nonetheless within the early levels of the Dogecoin pyramid scheme, or are we within the late levels? To me, the reply to that query will rely on whether or not or not corporations ever purchase Dogecoin to carry on their steadiness sheets the identical means corporations like Tesla (NASDAQ:TSLA) have purchased Bitcoin to diversify their steadiness sheets. Personally, I consider they won’t.
I’ve a troublesome time seeing sufficient further retail investor demand to drive Dogecoin costs a lot increased from their present ranges. With out corporations shopping for Dogecoin, I believe new Dogecoin traders are too late to revenue off the pyramid scheme. Nevertheless, if Dogecoin turns into a standard steadiness sheet holding of Fortune 500 corporations, right this moment’s patrons may nonetheless be getting in early sufficient to make a killing.
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On the date of publication, Wayne Duggan didn’t have (both instantly or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. Information & World Report Investing contributor since 2016 and is a workers author at Benzinga, the place he has written greater than 7,000 articles. Mr. Duggan is the writer of the ebook “Beating Wall Street With Common Sense,” which focuses on investing psychology and sensible methods to outperform the inventory market.