Dogecoin (DOGE 3.46% ) increased in value by more than 11,000% from the beginning of 2021 to the beginning of May this year thanks to the meme stock craze, a phenomenon that has gripped the cryptocurrency market. However, by the end of 2022, the token has lost 90% of its value.
With the new year comes a new spirit. Dogecoin has already gained 23% this year. Does this mean investors should buy the dog-themed meme now ?
In 2023, it will increase
It's easy to attribute Dogecoin's price hike this year to the extreme volatility of the cryptocurrency, but there could be a better reason. Over the past year, the Federal Reserve has been quick to raise interest rates to curb rising inflation. This has caused investors to stay away from riskier assets. As a result, the value of the cryptocurrency market has grown from around $2.2 trillion at the beginning of 2022 to $800 billion by the end of the year.
But with inflation still showing signs of slowing in December, the market was hoping the central bank would halt or even reverse its rate hike policy. And that could be good for risky assets, which may explain what investors are seeing not only in the cryptocurrency market, but also in some growth stocks.
In addition to the general macro factors, Dogecoin could also get the support of one of its most vocal supporters, Elon Musk. The tech visionary and CEO of Tesla , who often tweets about Dogecoin, whose value can rise and fall like a roller coaster, talked about how he plans to integrate payments with Twitter, the popular social media service he acquired late last year. Although Musk has never said anything definitive, fans aren't afraid to speculate. With Musk making Dogecoin the official payment mechanism for Twitter, it's easy to see why the value continues to rise.
Despite the Dogecoin price hike in 2023, the token is still down about 89% from its high in May 2021. Today, it is the world's ninth most valuable cryptocurrency network with a market capitalization of over $11 billion.
Focus on the essentials
Successful investing requires a truly long-term perspective, which means looking at least five years into the future. While it is tempting to bet on short-term price changes, especially in the cryptocurrency market, it is a surefire way to lose money. With this in mind, it's best to find assets that you want to own for several years.
As for Dogecoin, I'm not sure investors can say they want to own it for the long term. Despite its strong community and social recognition, it does not have a competitive edge among more than 22,000 cryptocurrencies. For example, Bitcoin is currently a promising store of value and has greater potential to become a payment mechanism in the future. It has a fixed betting limit of 21 million. Additionally, there is a growing ecosystem of bitcoin-focused financial products and services.
Compare that to the 133 billion tokens in circulation and 10,000 new Dogecoins being created every minute. This growing supply base does not make Dogecoin a strong candidate for investment.
While cryptocurrencies in general and Dogecoin in particular have been able to rise at such a rapid rate over the past few weeks and most of 2021, I still don't think investors should rush to add it to their portfolios. Yes, a strong fan community can be worth the price, but enthusiasm can quickly turn to pessimism, as it did in 2022. Betting on renewed interest in the market is also not a smart investment strategy.
I think it is better to stream Dogecoin.
Neil Patel has positions in Bitcoin. The Motley Fool has situations and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.