Dogecoin has heated up to its highest price in a couple of years.
After starting out as a joke in 2013, Dogecoin (DOGE 2.51%) has become one of the most recognizable cryptocurrencies. Dogecoin is the ultimate token for thrill-seeking investors. Dogecoin is famously volatile -- capable of massive price swings in a short amount of time.
Today, Dogecoin's price is around $0.20, well off its former high of $0.68. Perhaps it's wiser to walk before you run. Can Dogecoin surpass $0.25? It would be a nice move, representing over 30% upside from here.
Well, I've got good news and bad news. Here is what you need to know.
The good: Dogecoin could go on a run
One might say that Dogecoin is a cryptocurrency of the people. Over 96% of crypto wallets holding Dogecoin have $1,000 or less worth. That hints at Dogecoin's reputation as a fun cryptocurrency that investors generally buy, hoping for a price spike to make quick money.
It's the flagship meme coin; even its creators initially didn't take Dogecoin seriously. However, like most cryptocurrencies, strong demand will increase the price. It's not a coincidence that Dogecoin peaked during the meme stock bull market in 2021, when speculative investing was rampant:
Dogecoin Price data by YCharts
So, can Dogecoin go on a run? You bet. At $0.20, it has its highest price since that meme-stock craze initially wound down as the Federal Open Market Committee (FOMC) raised interest rates, pouring water on speculative market behavior. Now that the FOMC has stopped raising rates (for now), investor appetite for growth and speculative investments has somewhat returned. There's no telling how high that could take Dogecoin in the process.
The bad: Supply works against investors
The unpredictable nature of short-term Dogecoin prices can make you money, but investors may want to think twice about buying and holding. Unfortunately, Dogecoin wasn't designed well for long-term price appreciation. For starters, there is no supply cap like there is with Bitcoin. There can be an infinite amount of Dogecoin, which naturally will work against the per-coin price.
Dogecoin's market cap hit $84 billion when prices peaked at $0.68 per coin in 2021. Today, Dogecoin has a $27 billion market cap at $0.20. If Dogecoin traded at $0.68 today, its market cap wouldn't be $84 billion; it would be over $91 billion. In other words, the increased supply means that Dogecoin's total market cap may increase, even if Dogecoin's price doesn't.
Of course, investors only care about the price of Dogecoin, so keep that in mind when planning your investment strategy. Dogecoin's ever-increasing supply is like gravity. It will likely lower Dogecoin's per-coin price over time.
Here's the bottom line
Dogecoin can be somewhat counterintuitive. Investors should treat it like a short-term bet, a momentum trade that they hope they'll profit quickly from and then sell. This goes against the long-term mindset that makes many investors successful. However, there are no fundamentals underneath Dogecoin. There is no underlying business growing profits on which shareholders can base a price. Dogecoin is worth what someone else is willing to pay for it.
That's it.
Unfortunately, people don't like to pay as much for something when there is more of it. Dogecoin's supply will only grow over time, so don't treat it like you would most investments. Embrace a short-term attitude for Dogecoin, and consider cashing out profits when the price gets hot.
Justin Pope 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.
