Despite all the attention that artificial intelligence is getting these days, perhaps the most pronounced development in the economy and markets in recent memory is the rise of the cryptocurrency industry. It's valued at $3.8 trillion today, and the increasing value of some blockchain networks has certainly made some bold and lucky speculators rich.
One of the most popular tokens is Dogecoin (DOGE 4.41%), which was created in 2013 as a joke to compete with Bitcoin. The dog-themed digital asset has been extremely volatile, to no one's surprise, but it has put up monster gains in the past. That's true even though it trades 67% below its record high in May 2021 (as of July 19).
But can this dog-themed cryptocurrency roughly quadruple from its current price of $0.24 to reach $1 per token in 10 years? Here are the most important factors investors should be thinking about.
Image source: Getty Images.
Not an unrealistic gain
To be fair, in the wild world of cryptocurrencies, token prices can skyrocket to produce astronomical returns in a short time. However, it's always a good idea to hold expectations in check.
In the past decade, Dogecoin's price has soared more than 143,300% (as of July 19). The likelihood of the crypto repeating this gain during in the next 10 years is low simply because of the law of large numbers.
But it's not crazy to think Dogecoin's price might increase roughly fourfold in a decade and reach $1. Gains like that aren't unusual for stocks. It certainly wouldn't turn any heads if a crypto rose by that much.
Betting on hype cycles
What what value does Dogecoin provide? Is there a problem that this cryptocurrency solves? Digging deeper into this question will lead to a bearish outlook.
As mentioned, Dogecoin was created to a be a light-hearted rival to Bitcoin. There was really no other purpose to launching the token. Its founders, Jackson Palmer and Billy Markus, left the Dogecoin community years ago. These days, Dogecoin doesn't even crack the top 100 list of blockchains in terms of developer activity. That doesn't bode well for the likelihood that it will have real-world use cases in the future.
That brings me to what really drives Dogecoin's price action: hype cycles. A public mention by Tesla founder and Chief Executive Officer Elon Musk, or the creation of a governmental task force called the Department of Government Efficiency (DOGE) to cut federal spending, can make the token's price surge with no warning. But when the excitement fades, the price tanks.
It's not a smart idea to invest your hard-earned savings in a crypto like Dogecoin that doesn't add value. What's more, there is no reason to expect feature updates or improved software functionality to support greater adoption and boost the price.
CRYPTO: DOGE
Key Data Points
Competition from a proven winner
Investors have a more compelling option: Bitcoin. During the past three years, the world's leading cryptocurrency has climbed 460%, well ahead of Dogecoin's 232% gain. I think this indicates the market's waning interest in the latter, a trend I think will continue.
Bitcoin's scarcity, with a hard limit of 21 million coins, is a wildly favorable trait. Dogecoin's supply isn't capped. There are 10,000 new tokens created every minute and roughly 5 billion added to the circulation yearly. These adverse token economics are another major headwind.
While it's possible that Dogecoin's price will reach $1 by 2035, it's a bet that investors should avoid like the plague.
