If you're going to invest in cryptocurrency, it's important to choose the right one.
Cryptocurrency has been making headlines in recent months, and three types of digital currencies, in particular, are gaining the most attention: Bitcoin ( BTC -0.45% ), and Dogecoin ( DOGE -0.24% ).
If you're going to invest in cryptocurrency, it's important to choose the right one.
Not all cryptocurrencies are created equal, and it can be confusing trying to decide which type is right for you. Each currency has advantages and disadvantages, and which one you choose to invest in will depend on your unique situation.
If you know for certain you want to buy crypto, here's how to decide whether Bitcoin or Dogecoin is the right fit for you.
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While there's no such thing as a "safe" cryptocurrency, Bitcoin is somewhat less risky than Dogecoin. Again, this doesn't mean it isn't risky, but it does have several advantages over its competition.
Bitcoin is the original cryptocurrency, and it has the most name recognition and the most credibility. Few merchants accept crypto as a form of payment, but the ones that do are more likely to accept Bitcoin than other types of digital currencies. Widespread adoption will be key to crypto's long-term success, so Bitcoin has a leg up on its competitors.
In addition, Bitcoin is often referred to as "digital gold" because there is a limited number of tokens available -- 21 million tokens, to be exact. This scarcity increases Bitcoin's value, and it can also potentially drive up its price.
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Dogecoin has had an incredible run so far this year. Over the past six months, its price has surged more than 14,500%. In the past month alone, it's up around 350%.
However, Dogecoin is also, by far, the riskiest cryptocurrency on the list. Unlike Bitcoin , Dogecoin doesn't have a significant competitive advantage in the crypto industry. Very few merchants accept Dogecoin, giving it limited utility. It was originally created as a joke based on a meme, which also hurts its credibility.
The main reason Dogecoin's price has been soaring is due to internet hype. Online investors have been pumping up its price to make a quick buck, and celebrity billionaires like Elon Musk have also promoted Dogecoin on social media. But when any investment's price doesn't match its underlying fundamentals, it's only a matter of time before it crashes.
Sure enough, over the past week, Dogecoin's price has dropped roughly 40%. While nobody knows whether it will rebound or continue to plummet, buying Dogecoin right now is more akin to gambling than investing. If you choose to invest in Dogecoin, only invest what you can afford to lose.
Choosing the right cryptocurrency
Which cryptocurrency you choose to buy (and whether you should invest in crypto at all) depends primarily on your tolerance for risk. Risk-averse investors may be better off avoiding crypto altogether because even the "safest" cryptocurrencies are still incredibly volatile.
If you opt to jump on the cryptocurrency bandwagon, consider how much risk you're willing to take on. Bitcoin is by far the biggest player in the game, but Dogecoin also has potential -- and carries more risk. By doing your research and considering your options carefully, you'll be able to make the best decision for your situation.
