Alex Carchidi, The Motley Fool
4 min read
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Dogecoin is an asset that's driven by sentiment, not fundamental value.
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There's a little-known reason it isn't suitable for long-term holding.
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The coin is a classroom for meme-driven markets, but it shouldn't be a core holding.
Dog-themed meme coins like Dogecoin (CRYPTO: DOGE) can be funny diversions. But there's nothing funny about its gain of 7,300% during the past five years. Nor is there much to laugh about for investors who bought the coin at the peak of its popularity and who have been deeply underwater ever since.
The question for investors today is simple: After all that volatility, is this meme coin still worth thinking about buying? Surprisingly, the answer to that question is "yes," but that doesn't mean it's worth actually pulling the trigger.
As the first meme coin to go to the moon, Dogecoin has a special place in the crypto ecosystem as shown by its market cap of $28.5 billion.
With so much capital parked in the coin, it will probably still be as viable in 10 years as it is today. That doesn't mean you should be racing to buy it. But it does mean that it is reasonable to evaluate as an investment with a bit more attentiveness than the average meme coin.
First, let's take a look at its supply. Dogecoin mints a fixed 5 billion coins every year, with no cap on its total issuance; there are currently around 149.5 billion DOGE in circulation. That perpetual inflation means long-term holders depend on demand always outpacing the coin's expanding float, or the coins available for pubic trading -- a tall order for an asset that offers no staking yield or token burn mechanism. In other words, by default, holding it for the long term just results in your value getting diluted more and more over time.
Those drawbacks mesh with the main problem with Dogecoin. It began as a joke coin and never pivoted because the original developer abandoned the project and because there was no roadmap for features to add to the coin. There is no formal foundation behind it, no clear product vision, and no moat beyond community enthusiasm, which tends to be fickle.
That leads us to the last point to appreciate. Its price catalysts remain completely external and unpredictable. When Elon Musk or another celebrity says something about holding or buying Dogecoin, it might cause the price to spike. Obviously, that's not anything that a serious investor can plan around. Furthermore, during a speculative frenzy, the coin's price can reasonably be expected to rise -- but it's impossible to know when the music is going to stop, which makes it very difficult to properly time an exit from a position.
