Thanks to meme-stock mania, a phenomenon that spilled over to the cryptocurrency market, Dogecoin (DOGE 1.34%) saw its price skyrocket over 11,000% from the start of 2021 to early May that year. But from that point until the end of 2022, the token lost a whopping 90% of its value.
With the new year comes renewed enthusiasm. Dogecoin is already up 23% so far this year. Does this mean investors should buy the dog-themed meme token right now?
CRYPTO: DOGE
Key Data Points
Soaring higher in 2023
It's easy to chalk up Dogecoin's price rise this year to the fact that cryptocurrencies are extremely volatile, but there could be a better reason. Last year, the Federal Reserve quickly raised interest rates to curb surging inflation. And this caused investors to shun riskier assets. As a result, the crypto market's value went from roughly $2.2 trillion at the start of 2022 to $800 billion at the end of the year.
But with inflation continuing to show signs of cooling in December, the market could be counting on the central bank to halt, or even reverse, its rate-hiking policy. And this could be a positive for risk assets, which may explain what investors are seeing in not just the crypto market, but with some growth tech stocks as well.
In addition to general macro factors, Dogecoin might also be getting support from one of its most vocal supporters, Elon Musk. Besides frequently tweeting about Dogecoin, which could send its price up and down like a roller coaster, the tech visionary and Tesla chief executive officer has discussed how he has plans to integrate payments into Twitter, the popular social media service he bought late last year. While Musk has never said anything definitive, supporters aren't shying away from speculating. If Musk made Dogecoin the official payments mechanism for Twitter, then it's easy to see why the price might soar even higher.
Despite Dogecoin's price gains in 2023, the token is still down about 89% from its all-time high set in May 2021. The market cap of more than $11 billion today makes it the ninth-most-valuable crypto network in the world.
Focus on what matters
Investing successfully requires one to adopt a truly long-term perspective, which means looking out at least five years. Although it's very tempting to bet on short-term price movements, especially in the crypto market, this is a sure way to lose your money. With this framework in mind, the best thing to do is find assets that you are comfortable owning for several years.
With Dogecoin, I'm not sure investors can say that they'd like to own it for long term. Although it has a strong community and social recognition, it has no competitive advantage among the more than 22,000 cryptocurrencies out there. Bitcoin, for example, is a much more promising store of value right now and has much greater potential to become a payments mechanism in the future. It has a fixed supply cap of 21 million. Plus, there is an expanding ecosystem of financial products and services geared toward Bitcoin.
Compare that with Dogecoin, with 133 billion tokens in circulation, and 10,000 new ones being created every minute. This inflating supply base doesn't make Dogecoin a solid investment candidate.
Even though cryptocurrencies in general, and Dogecoin more specifically, can quickly skyrocket in value as it has just over the past few weeks and for most of 2021, I still don't think investors should rush to add it to their portfolios. Yes, having a strong community of supporters can be a positive for the price, but enthusiasm can instantly flip to pessimism as happened in 2022. Also, betting on renewed interest from the market is not a solid investment strategy.
In my opinion, it's best to pass on Dogecoin.
