On April 3, without any advance warning, Elon Musk changed the iconic Twitter bird logo to a Shiba Inu dog. He then followed that up with a funny meme image of a Shiba Inu dog on Twitter. Of course, Dogecoin (DOGE -1.09%) backers took that as a prophetic sign, given that the Shiba Inu dog is the unofficial mascot of this cryptocurrency. As might be expected, the price of Dogecoin rallied more than 30% in the span of just three hours, and 24-hour trading volume hit a peak of $3.54 billion -- the highest point it had reached in the last 90 days.

There's just so much to unpack here. Was this a late April Fools' Day joke? Did Elon Musk specifically intend to send the price of Dogecoin soaring? We may never know the answers to these questions, but one thing is certain: Long-term investors should never buy a meme coin.

Cartoon dog avatars are not catalysts

In the past, Elon Musk has endorsed Dogecoin with tweets, many of them featuring funny memes of the Shiba Inu dog. And, more times than not, these witty tweets have sent the price of Dogecoin upward. What could be better, the thinking goes, than to have one of the most famous billionaires on the planet openly showing support for a meme coin? So it's easy to see why many investors jumped at the latest opportunity to profit from Elon Musk's public support. 

Shiba Inu dog.

Image source: Getty Images.

However, the impact of this move was fleeting at best. Yes, there was a brief rally in the price of Dogecoin. But over the most recent 24-hour period, the price of Dogecoin is down by 1.52%. Dogecoin is still trading around $0.10 and shows no signs of breaking through the $1 mark -- a level this meme coin has never reached in its 10-year lifetime. The all-time high for Dogecoin is $0.74. That high, of course, coincided with Elon Musk's May 2021 appearance on Saturday Night Live, in which he joked that Dogecoin was basically "a hustle." 

The important point here is that cartoon dog avatars are not catalysts. Put another way, there are no fundamentals to support a high valuation for Dogecoin, which has never been more than just a meme coin. It was literally founded as a joke back in 2013. Dogecoin is still a dated proof-of-work blockchain with limited capability to support all of the modern innovations that have taken place in the blockchain world over the past decade. At best, it is a potential payment mechanism for online commerce -- with a limited number of vendors accepting Dogecoin payments.

That's why the Elon Musk connection is so interesting. He has long promised some sort of Dogecoin payment integration with Twitter. Being able to pay for goods and services via the Twitter platform would be a potential game-changer. But what has actually happened? Elon Musk has now been the owner of Twitter for more than six months, and the only concrete step he has taken to integrate Dogecoin is swapping out a Twitter bird logo. And we don't even know if this is a permanent move or not.

The legal and regulatory risk of meme coins

Another reason to be wary of meme coins is the legal and regulatory risk involved. Case in point: Elon Musk is now grappling with a $258 billion lawsuit that accuses him of systematically pumping up the price of Dogecoin so that he could profit when it ultimately collapsed. On March 31 -- just days before the replacement of the Twitter bird logo -- Elon Musk's legal team filed a motion to dismiss that lawsuit, claiming that a bunch of silly tweets professing his love for a meme coin is hardly racketeering. 

That being said, it is easy to see how regulators might not look too kindly on what is happening with Dogecoin. The SEC is in the midst of a crypto crackdown right now, and any whiff of market manipulation involving Dogecoin could very well trigger an investigation. 

Should you buy Dogecoin?

As a long-term investor, I'm inclined to see meme coins such as Dogecoin as a relic of the previous bull market rally. They were fun while they lasted, and I'll admit that I bought and sold Dogecoin at the very peak of the previous rally in 2021. 

But guess what? I lost money on my Dogecoin position, and judging by the massive $258 billion lawsuit against Elon Musk, a lot of other investors did as well. So the long-term gains just never materialized. In hindsight, it's easy to see why: The entire premise of a meme coin, such as Dogecoin, is built on constant hype and speculation rather than on any long-term fundamentals. Therefore, I can only recommend Dogecoin as a speculative experiment, not a long-term investment.