High inflation rates have forced the Federal Reserve to attempt to pump the brakes on the economy by rapidly pushing up interest rates. And the expectation of worse to come hasn't been good for risky assets like Dogecoin (DOGE -1.89%), which is down significantly in 2022 amid the turmoil in the crypto market.
Although it might be tempting to scoop up some Dogecoin in 2023, investors should stay away. Here's why.
A tool for speculation
Since its creation in December 2013, Dogecoin has generated a monster return of more than 15,000%, crushing the broader S&P 500 by an incredibly wide margin. Spurred by the meme-stock craze in the first half of last year, Dogecoin skyrocketed in popularity, and with it, the token reached almost $0.74 in May 2021. It's been a wildly different story since the peak, with Dogecoin down about 89% in the past 18 months.
Dogecoin has been the poster child of how volatile the crypto market can be, and this up-and-down nature has attracted gamblers looking to make a quick profit. Furthermore, Dogecoin's price has moved with public support from the likes of billionaire businessmen such as Elon Musk and Mark Cuban, who both accept Dogecoin as payment for Tesla merchandise and Dallas Mavericks tickets and merchandise.
According to Cryptwerk, a cryptocurrency data provider, Dogecoin is currently accepted at just 2,058 merchants worldwide. So as you can see, it has failed to achieve any widespread adoption besides being a tool for financial speculation. This doesn't bode well for Dogecoin's future.
Lacking a competitive edge
Like Bitcoin, Dogecoin was created as a decentralized payments network, albeit with a dog as a mascot. The original founders, Billy Markus and Jackson Palmer, wanted to make a satirical competitor to Bitcoin, meaning that Dogecoin competes directly with the world's oldest and most valuable cryptocurrency.
That's a ridiculously unfair fight. Bitcoin's market cap of $320 billion is about 29 times that of Dogecoin. And while there will ever only be 21 million Bitcoin in existence, there are a whopping 133 billion Dogecoin's in circulation right now, with 10,000 new tokens produced every minute. As a result of its declining new supply schedule, Bitcoin has true potential to become widely accepted as a digital store of value, a characterization that can't be made for Dogecoin among the investment community.
But to its credit, Dogecoin has attracted a faithful community of supporters who genuinely want to see the meme token succeed. Musk is among them, and he doesn't shy away from voicing his belief in this particular cryptocurrency.
Musk's purchase of popular social media business Twitter implied a bull case for Dogecoin, leading to a doubling of the price in the week after the deal closed. And there's speculation that the cryptocurrency could be integrated into Twitter's operations, perhaps as a mechanism for tipping on the platform. However, this isn't enough to justify buying the token.
Looking toward 2023, investors rightly want to position their portfolios to do well no matter what's ahead. Owning any Dogecoin, though, would be doing the exact opposite of this. It's best to stay away from this cryptocurrency.
