For more than a century, the stock market has been a money machine for Wall Street and investors. But in recent years, brand-name cryptocurrencies have lapped the returns of the major stock market indexes many times over. In fact, between the March 2020 low and the end of 2021, the aggregate value of digital currencies increased more than 14-fold, compared to a slightly better than 100% gain for the S&P 500.
Although most folks tend to focus on the blue chip digital currencies, like Bitcoin and Ethereum, it's meme coin Dogecoin (DOGE +1.93%) that's been the apple of investors' eyes for more than a year.
Shiba Inu-themed coins were on fire in 2021. Image source: Getty Images.
Could Dogecoin rally to $1 this year?
Once upon a time, Dogecoin was nothing more than a joke cryptocurrency that combined two of the most-popular trends of 2013: a Shiba Inu dog meme and digital currency. But over the trailing 14-month stretch, Dogecoin has rallied approximately 5,000%. And it was up considerably more when it hit its all-time high of nearly $0.74 per coin in May 2021.
With a veritable mountain of support behind Dogecoin, enthusiasts and holders believe it could hit $1 per token.
The $64,000 question is: Just how feasible is a $1 price target in 2022? Let's look at Dogecoin's catalysts and headwinds, then render a verdict.
In terms of catalysts, there's probably none bigger than having the world's richest person in your corner. Tesla CEO Elon Musk owns only three cryptocurrencies. One of those happens to be Dogecoin. Musk is no stranger to promoting Dogecoin on social media platforms like Twitter, or posting obscure memes implying that Shiba Inu dogs are "going to the moon."
To build on this point, Musk had previously tweeted that he's been working with Dogecoin's development team to make the blockchain-based network more efficient. In November, a new update (Core 1.14.5) went live that helped to reduce transaction fees. In the roughly two-month span since this upgrade was rolled out, the average transaction fee for Dogecoin has been effectively halved from around $0.60 to between $0.20 and $0.30 throughout much of January. Lower fees are imperative if Dogecoin is to be used for everyday transactions.
There's also the social media/community effect, which has been especially powerful. Last year, no cryptocurrency was searched more often in the U.S. than Dogecoin. That includes Bitcoin, Ethereum, and meme coin sidekick Shiba Inu, which delivered a historic gain of 46,000,000% in one year. Although emotion-based trading doesn't often lead to lasting moves in securities, the meme coins have demonstrated how powerful momentum can be in the crypto space.
Image source: Getty Images.
Here's what could keep Dogecoin well below $1 in 2022
But as with any investment, there are risks. Dogecoin is facing a number of headwinds that could keep it far away from a $1 target price.
For instance, even though recent upgrades have helped lower Dogecoin's average transaction fee, it's still not a particularly appealing network from a cost or efficiency perspective. With the exception of Bitcoin and Ethereum, most popular tokens -- whether they're payment coins, protocol tokens on payment networks, or the primary token on a smart contract-based network -- offer lower transaction fees and faster settlement times for transactions.
Another concern is its slow adoption. Despite Dogecoin debuting over eight years ago, online business directory Cryptwerk notes that only around 2,000 merchants worldwide accept Doge as a form of payment. Of these listed merchants, 9% are spot exchanges, which means they aren't true retail merchants.
To add to the above, Dogecoin's average daily transactions on its blockchain have been relatively stagnant for four years (around 30,000 transactions a day). If Dogecoin were seeing greater adoption, we'd witness increased activity on its blockchain.
Dogecoin's proof-of-work consensus mechanism might be problematic, too. This is a fancy way of saying that it relies on cryptocurrency miners to validate groups of transactions as true. Miners are paid block rewards in the form of doge tokens. This mining activity adds more than 5 billion doge tokens to the circulating supply annually, equating to around 4% supply inflation in 2022.
Image source: Getty Images.
The verdict
Now that we've taken a closer look at the catalysts and headwinds Dogecoin will encounter this year, let's get back to the question at hand: Can Dogecoin hit $1 in 2022?
Despite a powerful community effect and clear-cut ties to Elon Musk, my expectation is that it won't come anywhere close to $1 this year.
One of the biggest issues is that it simply doesn't have any competitive advantages or differentiation to allow it to stand out in a crowded and growing cryptocurrency space. While having a large number of followers and promoters on social media can be helpful at times, it's not making the network faster or cheaper, nor has it had a lasting effect on improving Dogecoin's utility.
Equally worrisome, history has not been kind to payment coins that deliver life-altering gains in a very short time. Between early November 2020 and early May 2021, Dogecoin gained close to 27,000%. But history has shown that payment coins gaining 24,000% or more in a short time tend to give back 93% or more of their value in the following two years-plus. My belief is we'll see Dogecoin continue to fade throughout much of 2022.
