Dogecoin (DOGE +3.06%) has taken its holders on a wild ride. Although its price is up a mind-boggling 40,600% in the past decade (as of March 3), it currently trades 88% off its peak. This level of extreme volatility is nothing new.
Now that Dogecoin has plummeted, there might be some risk-seeking market participants who want to make a move. I'm not one of these people. Here are three reasons why I'm not buying this meme cryptocurrency.
Image source: Getty Images.
No real-world utility
The first reason I'm staying away from Dogecoin is because it doesn't solve a problem. The digital token was actually created as a joke competitor to Bitcoin. That's it. There was no other objective than that. And its two founders are no longer involved.
Over the years, it's clear that the market has viewed Bitcoin much more favorably, given that its market cap of $1.4 trillion is 92 times more valuable than Dogecoin's $15.2 billion. The former has the brand recognition, network effect, regulatory buy-in, and growing integration within financial services that support its use case as a novel monetary asset.
Dogecoin, on the other hand, comes up short in these key areas. That doesn't bode well for its future.
Price moves based on hype
Nonetheless, it's still impressive that Dogecoin has remained relevant for such a long time. Its market cap right now is higher than well-known consumer-facing companies like Roku, Dutch Bros, and Etsy. That's a startling statistic.
I believe it all comes down to Dogecoin's community of supporters. They continue to believe in the project for some reason. For what it's worth, though, that community strength appears to be weakening, since Dogecoin's price has shown no signs of making a sustainable comeback to its price at the record in May 2021.
In the short term, the price can benefit from various hype cycles, which come about from public mentions of Dogecoin or market speculation about adoption. These spurts don't last long, and they are impossible to time correctly.
The token's supply has no upper limit
There are currently 169 billion Dogecoin tokens in circulation. That number increases by 10,000 per minute and about 5 billion per year. There is no hard supply cap. So, investors completely miss out on scarcity being a valuable attribute.
This setup does not benefit Dogecoin holders. It's similar to a business constantly issuing new shares. In other words, demand must outstrip supply in order for the token's price to have any chance at durable appreciation. That's not a bet I'm willing to make.
