Despite getting its start as a spoof of Bitcoin, Dogecoin (DOGE -6.27%) wound up producing life-changing returns for investors who bought and sold the token at the right times. But the famous meme cryptocurrency has seen a stark valuation pullback with bearish trends shaping the broader market, and its token price sits down roughly 89% from its peak.
Should investors be pouncing on a buying opportunity with the beaten-down token, or is this a case of a dog that's already had its day? Read on for a look at bullish and bearish catalysts that could shape trading for Dogecoin in 2023 and beyond.
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Bull case: Dogecoin has a large community and one powerful supporter
With a market capitalization of $10 billion as of this writing, Dogecoin ranks as the ninth-largest cryptocurrency by valuation. While its token price has fallen dramatically from its high, DOGE has actually moved up in terms of the crypto market cap ranks.
It's clear that the token has a large and highly engaged base of supporters, and this has helped it remain one of the larger names in the overall crypto space instead of vanishing like a flash in the pan once conditions for the broader cryptocurrency market turned bearish. With many smaller payment-oriented tokens washing out and almost completely losing support in the latest bear cycle for crypto, there's been consolidation in the space that could eventually work to DOGE's benefit.
Additionally, it's still possible that Tesla CEO Elon Musk will throw the meme token a major bone. Musk has been the coin's most visible supporter, and his comments have at times been enough to power big gains for its token price. With the famous executive having purchased and taken control of Twitter, it's possible that Dogecoin could see much greater integration with the social media platform. If that proves to be the case, the cryptocurrency could see explosive valuation gains.
With Dogecoin trading down dramatically from its high, it's possible that the token could enjoy big gains in conjunction with the next crypto bull market or with increased adoption from being integrated with new platforms. But investors shouldn't ignore the risks here.
Bear case: Dogecoin's value proposition is muddled
The cryptocurrency has been affected by many of the same bearish pressures that have caused volatility in the stock market lately. Given that high inflation and rising interest rates could continue to create macroeconomic pressures, Dogecoin continues to look like a very high-risk play.
Outside of being a speculative investment, Dogecoin's main use case is as a currency. But it's probably too volatile to see much adoption as an actual medium of exchange, and it doesn't have a core hook or positive attribute to set it apart from other payment-based tokens. Worse than that, DOGE actually has relatively high transaction fees. Setting aside the fact that a relatively high number of traders hold the coin, it's hard to make a sound case based on fundamentals for why Dogecoin's token price should climb.
Bitcoin led the broader cryptocurrency movement, establishing its foundations and attracting a large base of steadfast supporters thanks to its limited supply. Ethereum introduced a network for building, running, and scaling blockchain applications. Meanwhile, Dogecoin has no supply cap and is a meme phenomenon that saw its biggest gains powered by bullish momentum for the broader crypto market and support from Musk. And while Musk was at one time an active Dogecoin advocate, it's been a while since he championed the popular meme token -- and even his previous support seemed tongue in cheek at times.
Blockchain-based payment methods could see rising adoption, but the overall market remains young and highly volatile, and Dogecoin really isn't offering anything special in terms of utility.
Data by YCharts.
While Dogecoin is down big from its valuation peak, it's also still up nearly 3,500% over the last three years. There's still a lot of downside risk here.
So, is Dogecoin a buy?
Ultimately, I think Dogecoin remains too risky and doesn't have enough to fundamentally set it apart versus other similar cryptocurrencies. That doesn't mean that the token couldn't deliver big gains from current pricing levels.
If the crypto market enters another strong bullish phase, it's certainly possible that the rising tide could power big gains for DOGE. But in general, I think that the cryptocurrency's risk-reward profile remains unfavorable, and that investors aiming to build crypto positions in preparation for a new bull market would be better off putting their money behind coins with more differentiated, more well-defined use cases.
