Should You Buy Dogecoin While It's Under $1?

Key Points

• Dogecoin has generated a huge gain over the past five years, even though volatility has been high.

• The token has remained relevant thanks to its strong community of supporters.

• Lacking fundamental strengths, Dogecoin isn't a smart long-term investment.

• 10 stocks we like better than Dogecoin ›

Bitcoin deservedly gets a lot of attention, as it's the oldest and most valuable cryptocurrency. But it's hard to believe that Dogecoin (CRYPTO: DOGE), which was launched in 2013, also has a long history in the industry. The dog-inspired blockchain network has had a wild journey, but it sports a market cap of more than $36 billion (as of Sept. 9).

As of Sept. 9, this meme coin trades 67% below its peak, which was established in 2021. The token's price is currently $0.24. Should you buy Dogecoin while it's under $1?

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Monster returns in the past

Dogecoin might be trading well off its record, but it has soared in the past. Over the last five years, the crypto has increased by an astonishing 8,250%. A $10,000 investment made in Dogecoin in September 2020 would be worth a jaw-dropping $835,000 today. This digital asset performs well when investor sentiment is sky-high, as excessive risk-taking takes hold of the market.

Dogecoin's short-term price movements have been the direct result of its fluctuating popularity. Public mentions by key figures, such as Tesla founder and CEO Elon Musk, can drive the price up in no time. It also helps that Dogecoin has a strong community of supporters, which maintains its relevance over time. However, this is still an extremely volatile digital asset.

Dogecoin's fundamental weaknesses

It's true that there are some speculators who have gotten rich in short order by betting on various cryptocurrencies and seeing their prices shoot up. I'm sure early Dogecoin holders have experienced exactly this. The promises of huge gains can make buying Dogecoin seem like a prudent investing decision, especially since it's currently trading substantially below $1.

But buying this token is a big mistake. Dogecoin lacks any real fundamental strengths. And that doesn't bode well for its long-term success.

For instance, it has weak developer activity. According to Electric Capital, a venture fund, Dogecoin doesn't even make it on the list of the top 100 cryptocurrencies in terms of the number of developers working on it. When there are few people focused on advancing Dogecoin's capabilities by adding new features or introducing key updates to the software, it becomes difficult to boost adoption. This makes it fall behind.

Dogecoin was created as a joke rival to Bitcoin. It's commendable that it has gotten to a $36 billion market cap. However, this is less than 2% of the value of Bitcoin. I'd expect this percentage share to decline over time.

Dogecoin has a supply problem

When it comes to being a superior store of value, Dogecoin doesn't hold a candle to Bitcoin, which has a fixed supply cap and is decentralized and much more secure. There are currently 151 billion DOGE coins in circulation. Making matters worse, this supply increases by 5 billion each year. For the price to increase, demand needs to outpace an ever-increasing token base. That's a constant uphill battle.

There is also competition for speculators looking to gamble away their hard-earned savings. These days, there are an unlimited number of meme tokens on the market. These can draw attention and capital away from Dogecoin. And over time, this could lead to it losing relevance.

Looking out five or 10 years from now, there's a genuine possibility that Dogecoin's price will be lower than what it is today. The market should realize that the token provides no real-world utility. But that doesn't mean it's going to fall by the wayside. There will always be a community of supporters that remains fans of Dogecoin.

This token trades at $0.24 right now. Even at its beaten-down price, investors shouldn't be buyers.

Should you invest $1,000 in Dogecoin right now?

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.