It's common knowledge that investing in the stock market is one of the best wealth-building tools people have at their disposal. But over the past couple years, cryptocurrencies have proven that they can produce life-altering returns as well. Even with the disappointing start to 2022, the crypto market has soared from $174 billion on March 20, 2020, to almost $1.8 trillion as of the end of January. The Standard & Poor's 500 Index's return hasn't even come close.
Dogecoin (DOGE -4.30%), in particular, has been a cryptocurrency fan favorite. Its value has jumped more than top digital assets like Bitcoin (BTC -3.16%) and Ethereum over the past one-, three-, and five-year periods. But now might be a good time to part ways with the popular meme coin.
Here are three reasons you should consider selling Dogecoin this year.
Image source: Getty Images.
Limited real-world utility
I firmly believe that cryptocurrencies are here to stay and will slowly become a bigger part of our daily lives. But the viability of any single project depends on its promise for having real-world utility. Dogecoin is seriously lacking in this department.
Dogecoin was created to be a payments network, but it hasn't really gained any traction when it comes to being used in transactions. According to Cryptwerk, an online business directory, DOGE, Dogecoin's native token, is only accepted at 1,900 merchants worldwide. There are more than 30 million small businesses in the U.S. alone.
Billy Markus, one of Dogecoin's original founders, suggested that the coin be used for tipping in online communities like Reddit. Although Dogecoin's average transaction fee has come down significantly over time to just less than $0.15 today, that's still not low enough to encourage increased adoption, particularly to use for tips that will be made in very small nominal amounts. In fact, Dogecoin's transactions per day, now at 33,000, haven't trended higher throughout the years, a sign that it's not catching on.
Lacking a competitive edge
Compared to Bitcoin, which is the world's most valuable cryptocurrency, Dogecoin has no competitive advantage. Both were built to be global, decentralized, electronic cash networks, but Bitcoin's first-mover advantage and growing institutional acceptance as a legitimate store of value make it far and away the most established cryptocurrency. Trying to match this is an uphill battle for Dogecoin.
When it comes to basic supply and-demand dynamics, Dogecoin is in a precarious situation. There now are 133 billion DOGE in circulation, a number that increases by 5 billion every year. Demand would need to outpace a steadily rising supply base for the price to go up. On the other hand, Bitcoin's supply is capped at 21 million, supporting its scarcity.
And even when it comes to the world of dog-inspired meme coins, Dogecoin is finding itself in an increasingly crowded field. There are numerous ones out there, like Shiba Inu, Floki Inu, Baby Dogecoin, Jindo Inu, and Australian Safe Shepherd, to name a few. All seem to be riding the coattails of Dogecoin in order to gain popularity and price appreciation. And speculators who missed out on DOGE might just choose to gamble on these younger tokens instead.
Social media hype is unsustainable
Dogecoin brands itself as a "fun and friendly internet currency," depending heavily on building an online community of supporters. This has been a smart and effective move thus far, given that cryptocurrencies need to attract a digitally native audience of backers before anything else.
But ever since the price of DOGE peaked last May, it has come crashing down. Because Dogecoin's utility is limited, there is nothing driving the price except for online hype, something that is unpredictable and unsustainable for long-term investors to bet their life savings on.
As a result, owning the meme token would be a move based purely on speculation. The hope is that Elon Musk or Mark Cuban, who have publicly voiced their support for Dogecoin in the past, tweet about it again. This quickly draws attention to Dogecoin, possibly sending its price higher. Taking this approach is not a reliable investment strategy.
Dogecoin has undoubtedly been a huge winner, but it has limited use cases, holds no competitive edge, and is dependent on social media hype. It's time to ditch this token.
