Dogecoin (DOGE -0.68%) was created in 2013 by two friends who thought the cryptocurrency industry was taking itself too seriously. They used the popular Doge meme as inspiration, and thus Dogecoin became the world's first meme token.
Despite its founders calling the whole exercise a joke, Dogecoin's market capitalization soared to over $90 billion in 2021 as speculative investors flooded into the crypto space in search of quick returns. Unfortunately, such frenzies never last, and the meme token had lost more than 90% of its peak value by mid-2022.
After a directionless couple of years, Dogecoin found its feet again when Donald Trump won the presidential election last November. He promised to create an ideal environment for the industry to thrive, with friendly policies and less regulation. Since Dogecoin is still trading below its 2021 record high, should investors buy it ahead of a potential run to the $1 milestone?
The Dogecoin mascot as a puppy. Image source: Getty Images.
Dogecoin's latest burst of momentum is fading
Dogecoin's speculative rally in 2021 was partly driven by the support of Tesla CEO Elon Musk. He had been sharing Dogecoin-related memes and participating in banter with other enthusiasts on social media since 2019, leading investors to think he might have a long-term plan to create value for the meme token.
That belief reached a fever pitch when Musk appeared on Saturday Night Live (SNL) on May 8, 2021. Rumors swirled that he would make a bullish Dogecoin announcement, but all he did was participate in a comedy skit. In fact, he even joked that his Dogecoin support was a mere "hustle." The token reached a record high of $0.73 during the show, which would prove to be its peak.
After crashing to as low as $0.05 in the aftermath of the SNL saga, the crypto found some momentum again following last year's presidential election. It soared by almost 200% after Nov. 5, reaching a 52-week high of $0.47.
While still short of its all-time high, investors were as enthusiastic as ever because President Donald Trump announced Elon Musk would run a new external agency called the Department of Government Efficiency (or DOGE for short), which was tasked with reducing wasteful spending to help lower the national debt.
Calling the agency DOGE was a deliberate reference to Musk's favorite cryptocurrency. There was never any indication that it would serve a purpose in this new agency, but it didn't stop investors from buying it just in case Musk revealed a concrete plan to create real value.
But no such plan came to light, and he has since left DOGE to focus on his various business ventures. As I write this, the token is trading at $0.21, which is 55% below its recent 52-week high.
Dogecoin's never-ending supply growth could prevent further upside
Musk's dwindling influence over Dogecoin's price might not be its biggest issue. The token still lacks a function in the real world, with just 2,103 businesses around the world willing to accept it as payment for goods and services, according to crypto directory Cryptwerk. Plus, it has a supply issue that could be a major barrier to sustainable upside over the long term.
There are around 150.5 billion Dogecoin tokens in circulation, and although there is a cap on how many new tokens can be mined each year, there is no end date. In other words, new tokens will be introduced until the end of time, which means existing investors will suffer constant dilution.
Scarcity is often what makes an asset valuable. Take Bitcoin, for example, which has a capped supply of 21 million coins. Its price continues to rise because investors know additional Bitcoins will never be created, so they feel confident buying and holding the asset for the long term.
Since scarcity will never be a feature for Dogecoin, I think its chances of reaching $1 are almost zero. Therefore, this is one cryptocurrency investors might want to avoid.
