The Gamestop saga demonstrated the power of the crowds, but the Dogecoin phenomenon has a lot more staying power. After gaining more than 5,000% by mid-2021, the cryptocurrency caught the attention of celebrities like Elon Musk and now appears on mainstream platforms like Coinbase and Robinhood.
Let's take a look at the rise of Dogecoin, where to buy Dogecoin in the United States, and some risks to keep in mind.
Getting Started with Crypto
Cryptocurrencies are virtual currencies stored on a digital ledger known as a blockchain. Unlike credit cards, cryptocurrency transactions are peer-to-peer, meaning there is no intermediary. And unlike dollars, no centralized power controls issuing them—instead, third parties (miners or stakers) "process" transactions in exchange for compensation.
There are more than 11,000 different cryptocurrencies, according to CoinMarketCap, and their total value exceeds $1.5 trillion. The most popular cryptocurrencies are Bitcoin and Ethereum, but as of August 2021, Dogecoin was the eighth most popular cryptocurrency with a market capitalization of nearly $27 billion.
There are many reasons that people buy and sell cryptocurrencies. So-called "HODLers" believe that virtual currencies will overtake fiat currencies in the long run. Some investors use Bitcoin as an alternative asset to diversify their portfolios. And, many short-term traders try to make a quick profit from the significant volatility in crypto markets.
Exchanges like Coinbase or Binance provide the easiest way to buy and sell cryptocurrencies. If you plan on holding crypto for the long term, you may transfer coins from these exchanges to a hardware wallet. You can also mine cryptocurrencies (or join mining pools) or lend them through DeFi platforms to generate an income from your holdings.
What is Dogecoin?
Dogecoin was the brainchild of Billy Marcus and Jackson Palmer in late 2013. The team branded the coin with a popular meme featuring the deliberately misspelled word "doge" to describe a Shiba Inu dog. The tight-knit community later arranged a series of publicity stunts to raise awareness, like sponsoring a NASCAR driver.
Like Bitcoin, Dogecoin runs on blockchain technology and uses proof-of-work algorithms to process and record transactions. However, unlike Bitcoin, there's no lifetime cap on the number of Dogecoins, meaning that it's highly inflationary by design. These attributes make it suitable for payments and purchases but not as a long-term store of value.
In early 2021, Dogecoin caught the attention of Reddit's WallStreetBets message board and Tesla CEO Elon Musk. The significant boost in awareness helped create a cult following and sent Dogecoin's price more than 5,000% higher by mid-2021. Thus far, the cryptocurrency has kept the gains and remains the eighth most valuable cryptocurrency.
The future of Dogecoin remains uncertain. While Bitcoin is becoming a popular alternative investment and Ethereum supports a growing app ecosystem, Dogecoin's price relies on publicity. The virtual currency has become a popular way to tip others for posting content on social media, but its inflationary design could limit its upside.
Where to Buy Dogecoin in the U.S.
You can buy Dogecoin on crypto exchanges, like Coinbase, Binance, or Kraken. In addition, some online brokers, like Robinhood and TradeStation, support Dogecoin. As with other cryptocurrencies, you can move Dogecoin that you purchase on these exchanges to software or hardware wallets for safe long-term storage.
Where to Buy Dogecoin on Coinbase Pro
Coinbase Pro added support for Dogecoin in June 2021 after its surge in popularity. As a leader in the space, the platform offers real-time order books, charting tools, trade history, and a simple order process. The downside is that the platform has fewer currency pairs than alternative exchanges and requires identity verification.
Get started in a few steps:
- Create an account.
- Verify your identity.
- Buy as little as $25.
Where to Buy Dogecoin on Binance
Binance is one of the most popular exchanges in the world, with support for over 200 cryptocurrencies. Moreover, as one of the largest exchanges worldwide, the platform has some of the lowest fees in the industry. However, the company has come under intense regulatory scrutiny, leading to more investment in compliance.
Get started in a few steps:
- Click "Buy Crypto" in the top menu.
- Select a payment source.
- Put in the USD amount in Spend.
- Select DOGE from Receive.
- Click Login/Sign Up to complete the transaction.
Where to Buy Dogecoin on Robinhood
Robinhood is one of the most popular brokerage platforms for trading stocks, but it also supports a handful of cryptocurrencies. The platform is best known for its commission-free trades and gamified user interface, although it has a limited customer support team and doesn't support retirement accounts or mutual funds.
Get started in a few steps:
- Create an account.
- Fund your account.
- Put in the USD amount.
- Complete the trade.
Where to Buy Dogecoin on Kraken
Kraken is another popular U.S. crypto exchange. Known for its low transaction fees and security track record, the exchange's advanced trading platform includes spot and margin trading, as well as a dark pool that enables anonymous orders. Kraken also puts a lot of emphasis on customer support relative to other exchanges.
Get started in a few steps:
- Create an account.
- Click Buy Crypto.
- Enter a USD amount.
- Select Dogecoin.
- Complete the trade.
What You Need to Know About Selling
Selling Dogecoin is just as easy as buying it—you simply reverse the transaction. You can sell Dogecoin for U.S. dollars or other cryptocurrencies, such as Bitcoin. However, when you sell or exchange Dogecoin, it's a taxable event. You owe short-term or long-term capital gains tax on the difference between the purchase price and sale price.
For example, suppose that you purchased US$1,000 in DOGE coins, and it triples in value to $3,000. At that point, you decide to exchange the DOGE for BTC, which falls in value to US$1,000. At tax time, you would owe capital gains tax on the $2,000 increase in value when you exchanged DOGE for BTC even though the BTC is now worth just $1,000.
The amount of tax that you owe depends on the holding period. If you hold Dogecoin for less than a year before selling it, you owe short-term capital gains on any profits, which is equal to your ordinary income tax bracket. If you hold Dogecoin for more than a year, you owe long-term capital gains tax, which tends to be less than the short-term rate.
The 2021 long-term capital gains tax rates are:
If you lose money on Dogecoin, you can use that loss to offset other capital gains or up to $3,000 per year of ordinary income. For example, if you sold BTC in the above transaction, you could use the $2,000 loss to offset the $2,000 gain in DOGE and avoid tax. If you don't have any gains to cancel out, you can carry forward the losses to future years.
ZenLedger automatically aggregates transactions across wallets and exchanges and computes your capital gains and losses. In addition to ensuring accuracy, the platform also helps identify ways to harvest tax losses throughout the year to offset your tax liability. Try it for free today!
Common Questions & Concerns
Can you mine Dogecoin?
Mining pools, such as Zpool or Hashwiz, are the easiest way to start mining Dogecoin. While it's possible to mine Dogecoin without joining a pool, the cost of electricity and hardware far outweigh the profits that you're likely to earn. In addition, Dogecoin's fair value compared to other cryptocurrencies decreases profit potential.
Can you borrow or lend Dogecoin?
Earlier this year, OpenDAO enabled Dogecoin to be used as collateral to mint a dollar-pegged stablecoin called DOGEO. Dogecoin users can therefore take out DeFi loans using their Dogecoin assets.
Checklist of Top Performing Cryptocurrencies
Dogecoin may have had a strong performance throughout 2021, but several other cryptocurrencies are giving it a run for its money.
Some of the recent top performers include:
- Amp (AMP)
- Quant (QNT)
- Axie Infinity (AXS)
- OKB (OKB)
- Terra (LUNA)
The Bottom Line
Dogecoin has become tremendously popular over the past year thanks to Elon Musk's endorsements and a cult following. Fortunately, most popular cryptocurrency exchanges, and Robinhood, support buying and selling Dogecoin, making it easy for U.S. investors to get started. That said, it's essential to keep the risks and tax consequences in mind.
If you're looking for ways to organize your crypto taxes, try ZenLedger for free!
