The cryptocurrency market is back in investors' good graces. And some of the most speculative tokens are seeing huge gains.
Dogecoin (DOGE 0.78%), for example, is up 100% this year (as of April 5). Could this be the start of a massive bull run that sees the dog-inspired crypto eventually reach the coveted $1 mark?
Riding the hype wave
Investors are rushing in to buy Dogecoin, demonstrating once again how major hype cycles can push up the price in no time. There might be a potential catalyst on the horizon this time, though.
There are rumors that advertisers could use DOGE to pay for ads on X, previously known as Twitter. I applaud the possibility of Dogecoin being used as a payment mechanism, mainly because it can drive greater actual utility of the digital asset, but I'm not sure how many users would really do this. In the past, we've seen Tesla allow merchandise purchases to be made with DOGE. Even the Dallas Mavericks allow ticket and merchandise sales to be completed with Dogecoin.
However, I view this as simply a marketing tactic for companies to boost interest in their own products by riding the typically short-term burst of Dogecoin's price. It doesn't really move the needle from a fundamental perspective.
Like the vast majority of cryptocurrencies, Dogecoin has proven to be a method for financial speculation. Perhaps the recent price run-up is also partly driven by the anticipation of futures products for Dogecoin being launched on Coinbase, a popular crypto brokerage and exchange operator. In theory, this could add more liquidity because it would make it easier for individuals and institutions to bet on Dogecoin's price movements.
CRYPTO: DOGE
Key Data Points
A cryptocurrency to avoid
Looking at Dogecoin's history, it's clear that this token has been characterized by nothing more than periods of exuberance and pessimism. Therefore, only people who believe that they can correctly time the market and predict when upswings will occur should look at Dogecoin. To be clear, this isn't investing; this is trading. And there are very few people that can do this successfully, so it's best to avoid this activity altogether.
With that being said, the only reason most people should even consider buying Dogecoin is if they believe that 10 years from now, it will gain much broader adoption and utility. I'm not so optimistic about this outcome.
If a certain blockchain network has a strong developer community working to advance it, then it raises the chances of long-term success. New upgrades and features could be introduced over time. According to a report by Electric Capital, Dogecoin had 19 active developers working on it in December 2023, ranking 90th out of the top 100 blockchains. This doesn't bode well for its future.
Losing interest
Dogecoin's all-time high was set in May 2021, when it reached nearly $0.74 per token. This was during a phenomenal bull market for the cryptocurrency industry. The stock market was also rising rapidly at the same time.
The overall crypto market is approaching its all-time high again, but Dogecoin remains 76% off its peak price. Its price rose by just 32% in 2023, when the industry roughly tripled in value. I think it is a clear sign that the market is losing interest in Dogecoin, despite its most recent run.
Let's just assume that Dogecoin can reach $1 per token one day. Hitting that target means its price would soar 460% from today's level. Given its current outstanding token supply of 144 billion, this also implies a theoretical market cap of $144 billion.
While Dogecoin's strongest bulls want this outcome to happen, it's hard to believe that an otherwise worthless digital asset could reach such an astronomical valuation. Investors should stay away from Dogecoin. Hitting the $1 mark is probably never going to happen. There's also a high probability the price will eventually go to zero.
