Dogecoin (DOGE +0.54%) was the cryptocurrency industry's original meme-token. It was created as a joke by two friends in 2013, who were inspired by the "Doge" meme that was spreading across the internet like wildfire at the time.
Dogecoin has become a vessel for speculative investors because it has very little utility in the real world. Nevertheless, it managed to outperform most major cryptocurrencies in 2024 including Bitcoin, Ethereum, and XRP (Ripple):
Dogecoin Price data by YCharts
Per the above chart, most of those gains came after Nov. 5, which is when Donald Trump won the presidential election after campaigning on a series of crypto-friendly policies. Dogecoin investors received a special cherry on top thanks to Elon Musk, which I'll discuss further in a moment.
However, the meme-token has plunged by 55% from its post-election peak. Could it be the ultimate buying opportunity, or a sign to run for the hills? Let's find out.
Image source: Getty Images.
The Elon Musk effect
Elon Musk has supported Dogecoin since 2019. He often posts memes relating to the cryptocurrency on social media, partakes in friendly banter with other enthusiasts, and his electric vehicle company, Tesla, accepts it as payment for some merchandise.
On May 8, 2021, Musk even participated in a Dogecoin-themed skit on Saturday Night Live. The token soared to a record high of $0.73 during the show, at which point it was sitting on an eye-popping 15,769% gain for the year. However, it also happened to mark the peak -- it proceeded to lose more than 90% of its value in the months that followed.
That shouldn't be surprising given Dogecoin's highly speculative nature, and the token remained mostly dormant during 2023 and for most of 2024. But the presidential election last November ignited a fire under cryptocurrencies broadly, as Trump promised to make America the crypto capital of the world. The U.S. Securities and Exchange Commission has even started pausing some of its legal cases against crypto companies, suggesting the industry will have more regulatory freedom to invent new use cases to create value for investors.
Shortly after Trump won the election, he also announced that Musk will run an external agency called the Department of Government Efficiency, or DOGE for short. Its goal is to help the administration cut government spending in order to balance the budget. It has no role in the crypto industry whatsoever, but investors interpreted the name of the agency as a clear reference to Musk's favorite cryptocurrency, Dogecoin, which sent the token soaring.
Dogecoin lacks real-world utility
The key to creating value for any currency is adoption. Businesses need to accept it as payment for goods and services, because that gives consumers a reason to buy it and hold it. Unfortunately, only 2,025 businesses accept Dogecoin worldwide, and many of them are obscure providers of internet and crypto services, and even gambling websites. It's a drop in the bucket considering there are more than 350 million registered companies globally.
But Dogecoin isn't the only cryptocurrency failing the adoption test. Fewer than 7,000 businesses accept Bitcoin, and yet its market capitalization recently topped $2 trillion (although it has since dipped). But Bitcoin has won over the investment community because of its decentralized nature and its capped supply of 21 million coins, which can't be altered by any person, business, or government. As a result, it's viewed as a legitimate store of value, kind of like a digital version of gold.
Dogecoin, on the other hand, technically has an unlimited supply. Although there is a cap on how many new tokens can be created each year, the founders didn't set an end date -- in other words, Dogecoin's supply will literally grow until the end of time. As a result, it will probably never be considered a good store of value like Bitcoin.
CRYPTO: DOGE
Key Data Points
Déjà vu: A repeat of the 2021-2022 period?
As I noted, Dogecoin has declined by 55% from its recent December peak. Mind you, it topped out at $0.47, so it was nowhere close to surpassing its 2021 high of $0.73. That alone suggests investors are treading more cautiously this time around.
As was the case in 2021, there is currently nothing underpinning Dogecoin's value. There is absolutely no indication Musk's Department of Government Efficiency will utilize the token, and even with a friendly regulatory climate, it's unclear whether Dogecoin can find some other valuable use case.
As a result, I think the recent dip is merely a warning sign for investors. Dogecoin is trading at $0.21 per token as of this writing, and its low point in 2022 was $0.057, which suggests it could still lose significantly more value from here.
