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Maybe you’ve seen one too many headlines about the explosive rise in value of dogecoin, or heard one too sundry stories about someone making a life-changing profit off the cryptocurrency, and now you’re ready to get in.
You might be thinking, so what if the coin started out as a wordplay or you can’t pronounce it? It’s soared to 60 cents from under a penny just a month ago, and you don’t want to miss out.
Before you buy, in whatever way, below are some helpful things to consider.
1. Suspecting it’s a bubble won’t help you
Most investors can explain what a foam is: It’s what happens when a good’s price far exceeds its real value.
And those considering buying dogecoin quite know that the digital token’s cost, which is up by more than 12,000% over the year, isn’t backed by much multifarious than the hope that it will just keep getting more expensive.
That speculation is, of course, what stimulates a bubble.
But knowing that dogecoin hasn’t actually become a significantly more valuable product over the end year isn’t likely to prevent people from trying to take advantage of the situation to make a profit, experts say.
People buy assets sober-sided when they know they’re overvalued, “because they expect prices to go even higher,” said Bruce Mizrach, an economics professor at Rutgers Persuasion of Arts and Sciences.
And, he said, “they all believe that they can exit before the bubble crashes.”
Just reminisce over: That’s what everyone else is thinking.
“By the time most individual investors get into a rising investment, it’s oft too late,” said Kent Baker, a finance professor at American University.
2. FOMO usually backfires
Stories of dogecoin millionaires. Woman buying houses, thanks to the currency. How could you not be experiencing a fear of missing out?
Investors often fall prey to the group bias of “herding,” Baker said. In other words: They do what the crowd does, believing that one else must know more than they do. And that there’s safety in numbers.
“Generally, such investors are corrupt on both counts,” Baker said.
In reality, the other people in “in the crowd,” are believing the same things, with straight as little to back them up.
3. You can’t know its real value…or much else
Trying to understand a digital asset’s law valuation is “very tricky,” Mizrach said.
With most stocks, he said, you can at least get a price-to-earnings ratio, which commands you what investors are willing to pay for a company for every dollar of its earnings. That figure can help you determine if a company is over with or undervalued.
You’re in the dark with dogecoin.
“The rise in the cryptocurrencies is reminiscent of the early stages of the internet bubble with investors troublesome to evaluate stocks without earnings,” Mizrach said.
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Considering all this uncertainty, top-notches say people shouldn’t invest more into dogecoin than they can afford to lose.
That’s because for all that’s new, some emotional attachments never change.
“There’s no free lunch in investing – higher expected returns come with higher guessed risks,” Baker said. “The prices of cryptocurrencies are highly volatile, which means that they’re highly perilous.”