How risky is Dogecoin? The dangers of buying the cryptocurrency
DOGECOIN reached a record-breaking high of $0.4377 per coin earlier this month, encouraging amateur investors to get in on the action.
But since the surge, it has slumped in value and is now $0.29 today, according to CoinMarketCap.
Read our cryptocurrency live blog for the latest Bitcoin updates
DIY investors have been scrambling to pile cash into the cryptocurrency, but experts have warned about the risks of investing.
Buying cryptocurrency is a seriously risky businesses and you must be prepared to lose all of your cash if things go wrong.
They’re highly volatile meaning your cash can go down as well as up in no time at all.
For instance, the price of Bitcoin plummeted when the coronavirus crisis first hit, falling to lows of £3,300 last March.
Before parting with your cash, make sure you’ve carried out thorough research and are confident that you can afford to lose your investment.
What is Dogecoin?
Similar to Bitcoin, Dogecoin is a cryptocurrency which was launched in 2013.
Originally invented as a joke by software engineers Jackson Palmer and Billy Markus, the Dogecoin has the image of a Shuba Inu dog as its logo.
It has been marketed as the “fun” version of bitcoin.
Two weeks after its launch, the value of it jumped 300% after China banned banks from investing in cryptocurrencies, according to Investopedia.
Dogecoin then skyrocketed alongside other cryptos during the bubble that peaked in 2017, and it fell with the rest of them over 2018.
It enjoyed a renewed surge this year, smashing records by reaching $0.4377 on April 16.
But analysts warned that the “bubble has to burst” – and since then the cryptocurrency has dropped in value.
How risky is Dogecoin?
The Financial Conduct Authority (FCA) recently warned Brits they risk losing all of their cash when investing in cryptocurrency.
Cryptocurrency investments often promise high returns but come with “very high risks”. They’re not protected like other types of investment either.
“If consumers invest in these types of product, they should be prepared to lose all their money,” the FCA warned.
Firms offering other cryptoassets must now be registered with the FCA , and anyone who does invest in cryptocurrencies should check before investing.
But consumers are unlikely to be protected by the Financial Services Compensation Scheme (FSCS), which covers up to £85,000 of your savings if a firm goes bust.
You’re unlikely to take your complaint to the Financial Ombudsman Service (FOS) either, which typically only covers traditional savings and investments if something goes wrong.
5 risks of crypto investments
THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
Plus, there’s no guarantee that the cash will be converted back into physical money.
Tom Stelzer, investing expert at personal finance comparison site finder.com, said: “While Dogecoin’s sudden rise has captured the attention of many investors, it remains an extremely risky and volatile investment.
“Unlike Bitcoin, Dogecoin was initially created as a joke, and has no real underlying value.”
It comes as Brits have been banned from buying “harmful” types of cryptocurrency investment in the UK.
Meanwhile, Turkey banned cryptocurrency payments earlier this month due to the risk of transactions and the danger of “irreparable” possible damages.
What are the dangers of buying cryptocurrency on apps like Robinhood?
Platforms like Robinhood and Ustocktrade claim to make investing so simple that anyone can give it a go – though they come with their own risks.
It’s worth noting you can’t use Robinhood in the UK, while Ustocktrade is UK based.
Typically, they offer trading tools, stock tips and even cryptocurrency exchange.
“The danger of buying cryptocurrencies on platforms like Robinhood is that you don’t actually own the underlying asset,” explained Mr Stelzer.
“This means that if you want to move your coins, you won’t be able to do so, and if Robinhood decides to restrict trading at any point, you may find you’re unable to sell when you want.”
Yesterday, Robinhood app stopped trading in GameStop and AMC early on Thursday, causing shares to plummet.
Several Robinhood users reported problems with the platform after the investment company clamped down on the stocks claiming they were too volatile following huge price swings pushed by a Reddit group.
The issues were reported just minutes after Robinhood removed GameStop, AMC and other stocks that are part of the “Reddit Rally” from its app.
Critics have also argued that Robinhood “gameifies” investing, using tactics employed by addictive gambling apps to encourage users to buy stock.
It sends frequent push notifications to users about their stock positions, and when they make their first trade, confetti “rains down” in the app.
In response, Robinhood has argued that the app’s features “are meant for informational purposes only, and are not intended to serve as a recommendation to buy or sell any security.”
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