The meme token Dogecoin (DOGE -0.68%), created in 2013 as a joke by its founders, has been a mainstay of the crypto movement for much of the past decade. Despite its lack of real-world utility and doubts about its survival, Dogecoin is very much alive today. It's the eighth-largest cryptocurrency, with a market cap of more than $40 billion, surpassing expectations time and again. Where will it be in five years?
Can it develop real value?
Trying to assign value to cryptocurrencies has been a problem since Day One because they don't generate free cash flow or earnings, making them difficult to value like traditional stocks. Much of the attention has turned to finding value in how cryptocurrencies could be used in the real world and the power behind the blockchain technology they run on, which even Warren Buffett has praised despite his skepticism over investing in crypto.
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For instance, Bitcoin, the world's largest cryptocurrency, is viewed as a form of digital gold by some, due to its finite supply of 21 million tokens. Ethereum, the world's second-largest cryptocurrency, is the dominant network in the decentralized application ecosystem, and one of the main networks where stablecoins are issued.
Dogecoin has its own network, but it doesn't have any real-world utility. Each year, roughly 5 billion new tokens are issued, so it's not a good store of value, either. And the network is not strong from a technical perspective in that it can't process hundreds or thousands of transactions per second.
One reason the crypto is still around today is because it is considered the original meme token. It was one of the first assets to tap into the power of going viral and showed just how powerful a strong community on social media could be. As celebrities embraced the token, it took on a life of its own.
The question now is how long can this momentum last, with thousands of cryptocurrencies and new meme tokens popping up frequently. Having the first-mover advantage is key, but Dogecoin may need to find some real purpose if it wants to stay as relevant as it is today.
A group of developers have proposed the creation of a Layer-2 blockchain solution, which would essentially allow Dogecoin transactions to be processed off its main network, easing congestion without increasing transaction fees. This would also likely allow developers to build more decentralized applications on its network, which has become a key offering of blockchains that are stronger from a technical perspective.
Where will Dogecoin be in five years?
Making long-term price predictions about crypto is no easy task because the sector has always been so volatile, but I do think crypto will be alive and well in five years.
As for Dogecoin specifically, the price will depend on whether the network advances and is able to develop practical uses. Adding the Layer-2 solution and the ability to add smart-contract functionality for decentralized applications would be a good place to start, although other networks already have this, so it's difficult to determine how much these efforts would truly move the needle.
Regardless, I still think the token will be relevant and largely move in step with the broader crypto market, but also with more volatility. So if crypto does well, Dogecoin is likely to make stronger gains than the likes of Bitcoin and Ethereum, but will also likely have bigger losses than those two in a bear crypto market.
At the end of the day, I still see no reason to own Dogecoin. There are just so many other coins that trade on better networks and that are stronger from a technical perspective with more real-world utility.
