Bitcoin (BTC 3.55%) kicked off the cryptocurrency revolution when it was launched in 2009 by an anonymous developer who used the pseudonym Satoshi Nakamoto. In 2013, two friends named Billy Markus and Jackson Palmer felt the up-and-coming industry was taking itself too seriously, so they created the first meme cryptocurrency, Dogecoin (DOGE 7.49%).
It wasn't designed with any specific use case in mind. In fact, the friends admitted that the whole exercise was a joke. But those who believed in Dogecoin had the last laugh, because in just a five-month stretch between January and May 2021, it soared by more than 16,000% to a high of $0.73 per token. At that point, it had a market capitalization of more than $90 billion.
Unfortunately, Dogecoin couldn't maintain its momentum. It's down to just $0.17 of of Nov. 4. But its lack of a true use case is only one reason it's trending lower right now. There's another, far bigger problem that will apply downward pressure forever.
Image source: Getty Images.
Dogecoin is struggling to find a use case
None of the cryptocurrencies available today have become a good alternative to traditional fiat currency. Most of them experience extreme volatility, which would make cash flow management a nightmare for businesses, and Dogecoin is no exception. According to crypto directory Cryptwerk, just 2,116 merchants are willing to accept the meme token as payment, and many of them are obscure providers of crypto and internet services.
Dogecoin's incredible rally in 2021 was instead driven by speculative investors, who were spurred on by prominent figures like Tesla Chief Executive Officer Elon Musk. He regularly promoted the token on social media, and even during an appearance on Saturday Night Live in May of that year. But speculative frenzies never last, and Dogecoin lost more than 90% of its peak value by mid-2022.
The Tesla boss also had a hand in Dogecoin's most recent rally at the end of 2024. Following the November U.S. presidential election, Donald Trump announced plans to appoint Musk as the head of an external government agency called the Department of Government Efficiency. It was tasked with slashing federal spending to reduce the national debt. But Dogecoin investors were more interested in its name, because the acronym for the Department of Government Efficiency is "DOGE."
It was a clear reference to Musk's favorite cryptocurrency, and it sparked a rally which resulted in a new 52-week high of $0.47 last December. But the token has since lost more than half of that value.
CRYPTO: DOGE
Key Data Points
The bigger problem that could send Dogecoin plunging
Bitcoin is the only cryptocurrency that consistently sets new all-time highs year after year. Investors view it as a legitimate store of value partly because of its capped supply of 21 million coins, which can't be changed by any person, company, or government. These coins are earned through a process called mining, which involves using powerful computers to solve complex equations in order to verify transactions, allowing new blocks to be added to the blockchain.
Dogecoin tokens are earned in the same way, but unlike with Bitcoin, the meme cryptocurrency has an unlimited supply. Although there is a cap on how many new tokens can be mined each year, there is no end date, so additional tokens will constantly enter circulation until the end of time. The developers designed it this way to ensure that people always have a financial incentive to help verify transactions on the blockchain, thus keeping the ecosystem running.
Here's the problem. There are 151.5 billion tokens in circulation as I write this, and at a price of $0.17 each, Dogecoin has a market capitalization of $25.6 billion. Therefore, when supply inevitably doubles to 303 billion tokens, the price per token will technically have to halve to less than $0.10 for its market cap to remain the same.
That means that even in the unlikely scenario that Dogecoin finds a new use case capable of creating sustainable long-term value, its price per token will continuously remain under pressure as more supply enters circulation. That will be a serious barrier to the meme cryptocurrency ever reclaiming its record high of $0.73 from 2021, which likely takes the $1 milestone off the table, too.
That's why I think further decline is the path of least resistance for Dogecoin in the long run.
