The Dogecoin (DOGE -2.46%) cryptocurrency started as a joke, but a lot of people have made real money with it. The coin soared in the spring of 2021 and after the elections of 2024. Those who were lucky or clever enough to buy near the bottom and sell at the peak of each price spike may have pocketed tenfold returns in just a few days.
But the lofty prices don't tend to last long. On June 24, Dogecoin is trading 65% below December's 52-week peak. This meme coin has been a roller coaster over the past five years, but where will it go from here?
Could Dogecoin soar again?
Let's start with an optimistic analysis. Dogecoin has come a long way from its silly origins.
The "Doge Army" of coin holders and developers is passionate about the project, and it's almost the same thing as Bitcoin (BTC -0.02%) anyway. It's actually better for some purposes, thanks to quick transactions and low fees. Bitcoin was built for long-term value storage but Dogecoin focuses on speed. Some would say that Dogecoin could be an effective replacement for Bitcoin, dollar bills, and credit cards for settling everyday transactions.
Thanks to these qualities and a never-ending swell of social media buzz, Dogecoin is accepted by a surprising number of retailers already. If the community can keep up this momentum, this could someday become a widely used payment method. In this scenario, the coin could rise from $0.16 to $1 or more. Dogecoin came close to that benchmark once, topping out at $0.73 per coin in May 2021 -- and that was just a meme coin rally. A more serious push with soaring real-world payment volumes could drive the cryptocurrency's price much higher.
Image source: Getty Images.
Why Dogecoin is all bark, no bite
But then again, Dogecoin was built on a questionable foundation.
Bitcoin's long-term value is based on robust supply and demand calculations. There will never be more than 21 million of those coins on the market, and 94.7% of that supply has already been generated. There's not much room for inflation in the Bitcoin system, and increased demand should lift the coin price higher over time.
Dogecoin plays by different rules. The quick transaction settlement comes at a cost, using a less secure encryption algorithm. The meme coin also lacks the hardwired supply limit you see in Bitcoin, so your Dogecoin holdings are subject to plenty of inflation. There are 149.8 billion Dogecoins available today, up from 144.8 billion a year ago and 124.8 billion in June 2020.
The inflation rate will slow down over time as Dogecoin adds 5 billion new coins every year. This is by design, as Dogecoin's creators want people to use it rather than hoard it -- a lot like the way governments aim for a modest inflation rate in traditional fiat currencies. Still, the steady inflow undermines the coin's long-term value.
The next five years of Dogecoin's history should look familiar
At first glance, Dogecoin looks like a useful financial tool. But the coin is too volatile to play that role. I suppose you could set up Bitcoin to hold your wealth for the long run and convert some of it into Dogecoin as needed, like one might do with savings and checking accounts in an old-school bank.
That's not likely to happen any time soon, though. Many Dogecoin fans have no interest in other cryptocurrencies, and the dream is usually to capture the next skyrocketing price spike. As long as social media posts can control Dogecoin's price swings, it's hard to take it seriously.
So unless the Dogecoin community makes some fundamental policy changes over the next five years, I'm afraid you'll see more of the same unpredictable price charts. There may be a couple of big jumps along the way but Dogecoin's price chart should trend lower over time. I'd much rather put Bitcoin in my long-term investment portfolio. The original cryptocurrency was built to last.
