Should You Buy Dogecoin While It's Less Than $0.47?

Key Points

• Dogecoin was originally created as a joke, but in 2021, it achieved an eye-popping valuation of more than $90 billion.

• Dogecoin has since taken investors on an extremely volatile ride, and it's struggling to build sustainable momentum.

• Dogecoin has a series of structural issues that will be very difficult to overcome.

• 10 stocks we like better than Dogecoin ›

Dogecoin (CRYPTO: DOGE) was created in 2013 by two friends who felt the cryptocurrency industry was taking itself too seriously. They used the "Doge" internet meme as inspiration, and they said the entire endeavor was meant as a joke. However, little did they know Dogecoin would become one of the most valuable cryptocurrencies in the world in 2021, and it has taken investors on a rollercoaster ride ever since. Here's a brief timeline of recent events:

• 2021: Dogecoin soared to a record high of $0.74 per token, catapulting its market capitalization to more than $90 billion.
• 2022: Dogecoin lost more than 90% of its peak value, plummeting as low as $0.05 per token.
• 2023: Dogecoin mostly traded sideways because crypto investors were cautious after the collapse of the FTX crypto exchange and the TerraUSD stablecoin.
• 2024: Dogecoin soared by 251% to a new 52-week high of $0.47, outperforming every other major cryptocurrency for the year. The rally was triggered by Donald Trump's presidential election win in November, as he promised to make America the crypto capital of the world.
• 2025: Dogecoin is down by more than 50% from last year's peak, and trades at $0.23. Once again, the meme token is struggling to find a use case capable of creating sustainable value.

It's impossible to pin down the true value of a speculative cryptocurrency, but this is the most favorable political and regulatory environment the industry has ever seen. In theory, there hasn't been a better time for Dogecoin to find a new use case, so should investors buy it while it's trading below its 52-week high of $0.47?

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Image source: Getty Images.

Dogecoin's fundamentals are on shaky foundations

Cryptocurrencies were once touted as a viable alternative to traditional money, mainly because of their portability (they can be transferred to anyone, anywhere practically instantly). But in many cases, their extreme volatility has prevented mass adoption. A currency that soars in value by thousands of percentage points -- and then loses 90% of that value in the space of a year -- would make cash flow management impossible for businesses.

As a result, just 2,092 merchants worldwide are willing to accept Dogecoin as payment for goods and services, according to crypto directory Cryptwerk. If consumers can't spend their tokens with their favorite retailers, then they have no incentive to own any, so there isn't much demand from that perspective, either.

Bitcoin (CRYPTO: BTC), which is the world's largest cryptocurrency, has found a source of demand in the investment community. It's considered a legitimate store of value because of its decentralized nature, and its capped supply of 21 million coins creates the perception of scarcity. Plus, because Bitcoin continues to set new highs, its reputation as a reliable store of value has become somewhat of a self-fulfilling prophecy.

Although Dogecoin is decentralized, it doesn't have the benefit of a capped supply. It also hasn't come close to setting a new high in more than four years, so it's no surprise long-term investors might be steering clear.

Here is the biggest barrier to further upside

Let's focus on Dogecoin's uncapped supply for a moment. As is the case with Bitcoin, investors can earn Dogecoin through a process called mining, which involves using computers to solve complex mathematical problems to verify transactions on the blockchain. However, unlike Bitcoin, Dogecoin technically has an endless supply.

There are currently 151 billion Dogecoin tokens in circulation, and although there is a cap on how many can be mined each year, there is no end date. In other words, new tokens will enter circulation until the end of time, and I've yet to find an asset with an unlimited supply that consistently increases in value.

Even if developers come up with a new use case to drive demand, investors will have to fight an endless tide of dilution forever. Their positions will be worth a little less every time new tokens hit the market.

History suggests Dogecoin is more likely to head lower than higher

It's unlikely that friendly government policies and reduced regulation can solve Dogecoin's structural problems, which probably explains why the token is trending lower once again. But where is the bottom?

As I mentioned at the top, Dogecoin declined to as low as $0.05 in 2022, so if history repeats, the token could slide by another 77% from its current level. I'm not suggesting that will happen, but it appears to be the path of least resistance in the absence of a truly bullish development.

As a result, I wouldn't rush to buy Dogecoin just because it's trading at a discount to its 52-week high. This is an example where a low price doesn't mean cheap.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.