Should You Buy Dogecoin While It's Less Than $1?

Dogecoin (DOGE 9.62%) has minted a lot of millionaires since its launch in December 2013. The cryptocurrency was originally created as a parody of Bitcoin (BTC 1.39%) by two software engineers, Billy Markus and Jackson Palmer, and named after the viral “doge” meme, which features a Shiba Inu dog. Dogecoin was first traded at just $0.001540753 on Jan. 23, 2014.

But by the beginning of 2021, its price had risen to $0.01 and had caught the attention of mainstream investors. After a series of bullish endorsements from big celebrities like Elon Musk, Mark Cuban, and Snoop Dogg, its price soared to an all-time high of $0.73 on May 8, 2021. A $10,000 investment in Dogecoin on the first day would have grown to $4.74 million by now.

Image source: Getty Images.

But today, Dogecoin trades at about $0.12. The altcoin lost its luster as rising interest rates drove investors away from cryptocurrencies and other speculative investments. However, that $10,000 investment in 2014 would still be worth nearly $779,000 today. Dogecoin remains a divisive cryptocurrency, but some bullish investors believe the altcoin’s price could rally back to its record high and eventually reach $1.

So should you buy Dogecoin while it’s still trading far below that level?

The difference between Dogecoin and other cryptocurrencies

Dogecoin was created from the open-source code for Litecoin (LTC 1.38%), a token that was forked from Bitcoin’s blockchain in 2011. Like Bitcoin and Litecoin, Dogecoin was mined with the energy-intensive proof-of-work (PoW) consensus mechanism. However, Dogecoin’s developers subsequently launched a new hashing algorithm called Scrypt, which consumed less power and processed transactions at a faster rate than Bitcoin’s own mining algorithm. This version of Dogecoin can process retail transactions quickly, perhaps making it a useful real-world payment tool someday, but at the cost of less robust data security. The upgrade attracted more attention from online supporters who called themselves the “Doge Army.”

But unlike Bitcoin, which has a maximum supply of 21 million tokens, Dogecoin doesn’t have an ultimate supply cap. There are currently 146.3 billion Dogecoins in circulation, and that supply is increasing by about 10,000 tokens per minute. That ballooning supply could make it difficult for Dogecoin ever to revisit its record highs.

As a PoW blockchain, Dogecoin doesn’t natively support smart contracts, which are used in proof-of-stake (PoS) blockchains like Ethereum (ETH 0.69%) to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. PoS blockchains also enable their investors to “stake” (or lock up) their tokens to earn interest-like rewards. Ethereum was previously a PoW blockchain, but it transitioned to the PoS mechanism in 2022 to reduce its energy consumption.

Dogecoin’s lack of a developer foundation makes it a difficult token to value, but a handful of businesses — including Tesla, Microsoft, and AMC have started to accept the token for payments. That support might eventually stabilize its price.

Dogecoin’s catalysts aren’t too impressive

Earlier this year, Coinbase Global (COIN 2.70%) launched new futures trading for Dogecoin. Those listings could potentially pave the way toward Dogecoin future exchange-traded funds (ETFs) or even spot price ETFs in the distant future.

Another persistent rumor is that Dogecoin, like Ethereum, might migrate from the PoW to the PoS mechanism. If that happens, an influx of developers could set a firmer foundation under Dogecoin’s price by tethering the token to new dApps. Dogecoin’s investors could also reduce its volatility by staking their tokens. They could also finally set up new “burn portals” to take more tokens out of circulation and cap its supply. However, that could be a very difficult transition to pull off.

Ditching the PoW mechanism would also alienate its mining community, since PoS tokens can only be staked instead of mined. Declining interest rates might drive more investors back to Dogecoin, but bigger “blue chip” tokens like Bitcoin and Ether would also benefit from that rotation. In other words, it’s still tough to see the long-term catalysts for Dogecoin.

So, should you buy Dogecoin right now?

Dogecoin’s price more than doubled over the past 12 months as the crypto winter ended, but its upside potential could be limited by its inflationary nature; lack of utility for consumers, investors, and developers; and unfavorable comparisons to Bitcoin, Ethereum, and other larger cryptocurrencies.

Dogecoin currently has a market cap of $18.5 billion, but that figure would need to soar to $154 billion (assuming its supply remains constant) for its price to hit $1. That would make it the world’s third most valuable cryptocurrency after Bitcoin and Ethereum — but I don’t think it deserves to fly that high. Its volatility might make it a fun short-term trade, but I wouldn’t expect it to generate more consistent gains than its larger crypto peers over the next few years.