I can’t believe I’m writing this, but 2024 is almost over. Over the past 11 months, capital markets have been influenced by everything from artificial intelligence (AI) to the presidential election.
As always, the market posted another resilient performance — with the S&P500 (^GSPC 0.61%) And Nasdaq Composite (^IXIC 1.30%) each boasting total returns of nearly 28% (at the time of this writing).
But in the background, another asset class hasn’t performed terribly either. I’m talking about cryptocurrency. While Bitcoin flirted with the prospect of reaching $100,000 per coin, a different token caught the eye.
Dogecoin (DOGE 6.01%) is up more than 350% in 2024, and there’s a real chance it will continue to skyrocket. While it’s tempting to buy Dogecoin right now, I’ll outline one of the key catalysts fueling its rise and explain why investors would be better off leaving it alone.
What is driving the price of Dogecoin up?
On September 11, I published an article predicting that Dogecoin price was about to go parabolic. Since the day I published my article, Dogecoin has soared 330%.
I’m not saying this to brag – it’s not like I have a crystal ball and can predict the future. To me, it was obvious that the Dogecoin price was about to burst.
For what? Because I thought there was a very good chance that then-candidate Donald Trump would emerge victorious in the presidential election. It turns out that this intuition was also correct.
Although President-elect Trump has been a strong supporter of Bitcoin, one of his biggest donors and campaign surrogates has long been tied to Dogecoin. Of course I’m talking about Tesla CEO Elon Musk.
While Musk has been more of a tongue-in-cheek supporter of Dogecoin, the entrepreneur made a pretty obvious tease related to the cryptocurrency before the election. Musk notably used social media to promote the creation of a new government agency in the event of Trump’s victory. The name of the agency was Ministry of Government Effectiveness (DOGE).
My reasoning was that if Trump won, he would subsequently announce that Musk would join his administration and create DOGE. As such, I figured the price of Dogecoin would increase based on this news. So far, all of these things have happened — but this does not mean that Dogecoin is a wise investment opportunity.
Image source: Getty Images.
Why Investors Should Avoid Dogecoin
The main reason why investors should avoid Dogecoin is that it is a coin. As I pointed out, the main reason the price of Dogecoin has been rising lately is from rumors of a new government agency led by Musk and the funny memes that have fueled this narrative online. In other words, Musk’s DOGE has nothing to do with Dogecoin itself. Ultimately, the price of Dogecoin is completely disconnected from anything tangible.
Where will Dogecoin be in a year?
In the short term, I would not be surprised to see the price of Dogecoin continue to rise. Between the positive sentiment surrounding DOGE, the inauguration of President-elect Trump approaching, and the possibility of a Santa Claus Gathering at the end of December, I think there is a good chance that stocks and cryptocurrencies will experience another shake-up before the end of the year.
But as always, reality will eventually set in. The idea of DOGE is interesting: reducing excess costs in the federal budget to reduce the deficit. However, I think Elon Musk and his team will eventually realize that such an effort is much easier said than done. After all, the new Trump administration is not the first to have such an idea.
While I’m not saying DOGE is doomed to failure, I am positing that reducing the federal deficit will take much longer than most people probably anticipate. As such, I wouldn’t be surprised to see some of the euphoria surrounding Musk’s ambition start to fade – and with it, the price of Dogecoin.
In my eyes, Dogecoin is an unusually risky investment opportunity, wrapped up in the already speculative nature of the cryptocurrency. I would forgo investing in Dogecoin and let the internet-generated hype play out. This time next year, I wouldn’t be surprised if the price of Dogecoin pulls back significantly.