Will Dogecoin, the Digital Cryptocurrency, Turn You into a Millionaire by 2025?
The volatile cryptocurrency market has always appealed to bold investors, or perhaps more accurately, speculators. These digital assets can outperform traditional indices like the S&P 500 or Nasdaq Composite at their best. As of the time of writing, Dogecoin (DOGE, up 6.86%), with a year-to-date increase of approximately 340%, is a prime example of this market's explosive, wealth-creating potential. However, excitement can only sustain a surge for a limited period before real-world factors come into play. The question now is whether Dogecoin's fundamentals can support sustained growth over the long term.
The Case for Dogecoin
Established in 2013, Dogecoin is often considered as the first of the 'meme coins', a category of cryptocurrencies rooted in online humor. Unlike other blockchain platforms, meme coins primarily lack practical applications or the intention to address the drawbacks of existing blockchain platforms. Yet, their smaller market caps often result in volatility and the potential for substantial returns during favorable market conditions.
Dogecoin struggled in the past, but 2021 brought a turnaround primarily due to supportive tweets by Tesla CEO Elon Musk and the easing of monetary policies and stimulus packages following the COVID-19 pandemic.
As demonstrated in the graph below, Dogecoin has seen an astounding 103,400% increase since its inception. During the same period, Bitcoin grew by 16,470%. While Dogecoin has created a fair share of millionaires, it has also caused significant financial losses. Prices have declined by about 45% from their all-time high of $0.7376, reached in May 2021.
What Fuels the Recent Surge?
Since Dogecoin is a higher-risk, higher-reward investment, potential investors should carefully examine its fundamentals.
Similar to the 2021 bull run, the recent surge in Dogecoin can be traced back to Musk's support on X (formerly Twitter). Moreover, Musk's association with a federal watchdog agency named the Department of Government Efficiency (DOGE) is generating interest due to the agency's name being reminiscent of Dogecoin's ticker symbol.
Musk's expected influence in the new administration could result in a more welcoming regulatory environment for cryptocurrencies.
The expected resignation of the current Securities and Exchange Commission (SEC) chairman, Gary Gensler, under the presidency of Donald Trump, is another significant development. Gensler is criticized or praised for his role in bringing several lawsuits against cryptocurrency platforms, alleging violations of securities laws. These targets included prominent crypto exchange Coinbase Global, which was sued by the SEC in June for operating as an unregistered broker and exchange.
The incoming government is expected to shape the public's interaction with digital assets, and many believe that the proposed SEC head, Paul Atkins, will adopt a less aggressive stance.
Is Dogecoin A Worthy Investment?
The near future of the cryptocurrency market looks promising, with a more favorable regulatory climate potentially improving access to this rapidly expanding asset class and making it more appealing to large institutional investors.
However, Dogecoin's fundamentals pose a challenge. The platform is designed to produce 5 billion new coins each year (147 billion units are currently in circulation), which can help enhance liquidity for use as a medium of exchange. Nevertheless, the constant coin creation makes Dogecoin less appealing as a long-term investment due to its dilutive effect on coin value. Although Dogecoin has created wealth for many, the risks of investing at the peak of this current rally seem to outweigh the potential returns.
Considering Dogecoin's significant price volatility, careful financial planning is crucial when investing. As a riskier investment option compared to traditional markets, it's important to allocate funds accordingly to minimize potential financial losses. Despite Dogecoin's impressive previous returns, it's essential to investigate its long-term fundamentals before making an investing decision in the finance sector.
