While down about 91% from its peak price set in May 2021, Dogecoin certainly still remains a popular cryptocurrency among speculators. Even famous billionaire businessmen, like Tesla CEO Elon Musk and Dallas Mavericks owner Mark Cuban, have publicly shown their support for the meme coin that was catapulted into the spotlight in early 2021.
At a current market capitalization of $9.5 billion (as of June 7), this cryptocurrency is the eighth-most valuable in the world. But some investors might have their sights set on an even greater value.
Based on its current price of $0.068 per token, a hypothetical $1 price target implies a huge gain of almost 15-fold. Is this even possible? Let's take a closer look at why Dogecoin holders should seriously temper their expectations.
Image source: Getty Images.
It's freezing cold
The year 2021 was a boon for the cryptocurrency market, which saw its entire value roughly triple. But last year was a different story. Rapidly rising interest rates scared investors out of risky assets, and this resulted in the market shedding about two-thirds of its value in 2022. Major failures of high-profile crypto firms also made things much worse last year.
We now find ourselves in a so-called "crypto winter," when interest in digital assets remains pressured for a prolonged period of time. This situation is being exacerbated by the recent legal action that the Securities and Exchange Commission has taken against Binance and Coinbase for allegedly operating unregistered brokerage and exchange businesses. This only adds to the list of worries for crypto investors.
Show me the use cases
Nonetheless, blockchain technology still has promise. Ethereum, the biggest programmable crypto network, is enabled by the use of smart contracts, which are computer programs that automatically execute when separate parties satisfy their sides of a particular transaction. It has paved the way for use cases ranging from non-fungible tokens and gaming applications to decentralized finance protocols. Many crypto supporters think that these decentralized applications will only become more prevalent in the future, upending many industries.
Bitcoin, the world's most valuable cryptocurrency, isn't as programmable as Ethereum. But Bitcoin is viewed mainly as a new store of value. Its supply cap of 21 million is hard-coded in the software, so as demand rises over time, so should the price. Moreover, some Bitcoin bulls think it could become a new global reserve currency one day.
In fact, Dogecoin was launched in 2013 by Billy Markus and Jackson Palmer with the sole intention of being a fun version of Bitcoin. But in this industry, network effects matter. Dogecoin has positioned itself to be a direct competitor of Bitcoin, a battle I'm sure it will lose because it doesn't have the scale, developer base, and adoption that the latter does.
According to cryptwerk.com, an online directory that shows which businesses accept which cryptocurrencies, Dogecoin is only accepted at 2,000 different merchants right now. And according to bitinfocharts.com, the Dogecoin network processed about $395 million of transaction value in the last 24 hours, much lower than Bitcoin's $13 billion. This data tells me that there isn't much utility for this dog-inspired token.
Betting on the community
But even with this lack of adoption, Dogecoin has found a way to crack the top-10 list when it comes to most valuable cryptocurrencies. And I believe that has to do mainly with its loyal community of followers.
To be fair, one could argue that cryptocurrencies so far are only driven by how popular they can be with a community of users, developers, or investors. Dogecoin remains relevant because of this. But basing an entire investment thesis on a digital token becoming more popular, with no underlying fundamental reason for that happening, is not a smart way to allocate one's hard-earned savings.
The numbers don't add up
Let's just assume that Dogecoin is one day able to miraculously reach that sought-after $1 target. With its 140 billion tokens outstanding, this equals a potential market cap of $140 billion. That's more than major companies like Starbucks, PayPal, and Target.
Unless there's an unexpected surge in utility, I don't see Dogecoin being deserving of this type of valuation. So, I don't see it ever reaching $1.
