The cryptocurrency market is booming this year. The value of all coins and tokens combined recently hit an all-time high of $3.8 trillion, more than quadrupling from its 2022 bear market low point of $823 billion.
But these gains have been accompanied by significant volatility, particularly in the more speculative corners of the crypto space. Token meme Dogecoin(CRYPTO:DOGE)for example, was sitting on an incredible 414% year-to-date return through last Wednesday, but it plunged 31% in the week since.
Dogecoin is heading into 2025 with the wind at its back, thanks to a more favorable regulatory environment and continued support from the world’s richest person, Elon Musk. Therefore, should investors use the recent decline as a buying opportunity?
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Elon Musk has been a big supporter of Dogecoin since 2021, when he regularly promoted it on social media and even when appearing on Saturday Night Live (SNL) in May of the same year. He even called it his favorite cryptocurrency.
Dogecoin was trading at $0.0046 per token at the start of 2021, and in five months it had soared 15,769% to an all-time high of $0.73. Musk’s support largely contributed to this decision, but his SNL the apparition marked the summit. Investors realized that he had no concrete plan to back up his vocal support for Dogecoin, which ended up losing 92% of its value by mid-2022.
After remaining virtually inactive in 2023 and most of 2024, Trump’s election victory on November 5 was the spark Dogecoin needed to stage a recovery. It appears he will be a very pro-crypto president, and he recently named pro-crypto businessman Paul Atkins to head the Securities and Exchange Commission (SEC), pending Senate approval.
This means that the crypto industry could face lighter regulation over the next four years, paving the way for new use cases, which could be key to value creation. However, Dogecoin enthusiasts got another surprise when Trump appointed Musk to head an agency called the Department of Government Efficiency, or DOGE for short. The acronym refers to his favorite cryptocurrency, which sent investors into a frenzy.
Dogecoin soared to a 52-week high of $0.47 earlier this month, and it was heading towards its 2021 high of $0.73. However, it has fallen 31% since last Wednesday, because the US Federal Reserve released new forecasts indicating fewer interest rate cuts next year. Interest rates do not directly affect Dogecoin, but a higher cost of money tends to weigh on the more speculative areas of the financial markets. After all, it’s easier to profit from borrowed funds when interest rates are low.
Dogecoin doesn’t have many real-world use cases. According to Cryptwerk, only 2,412 merchants are willing to accept it as payment worldwide, and many of them are obscure internet companies, crypto service providers, and even online gambling houses. If consumers can’t spend their Dogecoin tokens at their favorite stores, they have no reason to own them except in the hope that their value will increase.
In other words, Dogecoin perfectly fits the definition of a speculative asset. This shouldn’t come as a surprise given that its founders admitted to creating it as a joke in 2013.
In Dogecoin’s defense, no cryptocurrency has yet achieved mainstream adoption – not even Bitcoinwhich is the most valuable coin in the world. However, Bitcoin is starting to convince the investment community for its potential as a store of value. Some analysts compare it to a digital version of gold.
Bitcoin has a capped supply of 21 million coins, which are expected to be fully mined by 2140. Dogecoin, on the other hand, has a limited issuance per year, but new tokens can technically be mined until the end of time. Therefore, it is unlikely that Dogecoin will ever be considered a good store of value, as investors’ holdings will be constantly diluted with no end date.
To determine where Dogecoin could go next, it might be best to learn from the past. The speculative frenzy that drove it to a per-token price of $0.73 in 2021 fizzled out as quickly as it began, and investors late to the party suffered significant financial losses.
Unfortunately, I don’t see how the last gathering will end differently. There are no apparent plans to involve Dogecoin in the new Musk-led DOGE agency, and there have been no changes to the token’s fundamental outlook. It’s possible that a lighter regulatory environment could open the door to new use cases, but that’s a complete unknown at this point.
As a result, I do not think the recent 31% drop is an opportunity to buy Dogecoin. Could it go higher from here? Of course. But predicting what speculators might do next is impossibleand Dogecoin could also be headed for another 90%+ drop.
Investors should even consider the possibility that the recent high of $0.47 is the current cycle high.
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