I can't believe I'm writing this, but 2024 is almost over. During the past 11 months, the capital markets have been influenced by all sorts of things -- from artificial intelligence (AI) to a presidential election.
As always, the market showcased yet another resilient performance -- with the S&P 500 (^GSPC -1.11%) and Nasdaq Composite (^IXIC -1.49%) each boasting total returns of nearly 28% (as of this writing).
But in the background, another asset class hasn't performed too shabbily, either. I'm talking about cryptocurrency. While Bitcoin flirted with the prospect of reaching $100,000 per coin, a different token has grabbed the spotlight.
Dogecoin (DOGE 0.33%) is up more than 350% in 2024, and there's a real chance it could continue rocketing higher. Although it's tempting to buy Dogecoin right now, I'll outline one of the primary catalysts fueling its rise and make the case for why investors are best off leaving it alone.
What is driving the price of Dogecoin higher?
On Sept. 11, I published an article predicting that the price of Dogecoin was about to go parabolic. Since the day my article was published, Dogecoin has soared by 330%.
I don't say this to brag -- it's not like I have a crystal ball and can predict the future. To me, it was obvious that the price of Dogecoin was about to break out.
Why? Because I thought there was a very good chance that then-candidate Donald Trump would emerge victorious in the presidential election. Turns out that hunch was correct, too.
Although President-elect Trump has been more of a vocal supporter of Bitcoin, one of his biggest donors and campaign surrogates has long been tied to Dogecoin. Of course, I'm talking about Tesla Chief Executive Officer Elon Musk.
While Musk has been more of a tongue-in-cheek supporter of Dogecoin, the entrepreneur made a pretty obvious tease tying in the cryptocurrency leading up to the election. Namely, Musk took to social media to promote the creation of a new government agency should Trump win. The name of the agency was the Department of Government Efficiency (D.O.G.E.).
My reasoning was that if Trump did win, he would subsequently make an announcement about Musk joining his administration and create D.O.G.E. As such, I figured the price of Dogecoin would rise based on this news. As of now, all of these things have happened -- but that doesn't mean Dogecoin is a wise investment opportunity.
Image source: Getty Images.
Why investors should avoid Dogecoin
The biggest reason investors should avoid Dogecoin is because it's a meme coin. As I pointed out, the primary reason Dogecoin's price has risen as of late all stems from rumors of a new government agency led by Musk and funny memes that have fueled this narrative online. In other words, Musk's D.O.G.E. has nothing to do with Dogecoin itself. At the end of the day, the price of Dogecoin is completely disconnected from anything tangible.
Where will Dogecoin be in one year?
In the short term, I wouldn't be surprised to see the price of Dogecoin continue running higher. Between the positive sentiment surrounding D.O.G.E., President-elect Trump's inauguration inching closer, and the potential for a Santa Claus rally at the end of December, I think there's a good chance that stocks and crypto see another jolt before the end of the year.
But as always, reality will eventually set in. The idea of D.O.G.E. is interesting -- namely, slashing excess costs in the federal budget to reduce the deficit. However, I think Musk and his team will come to find that such an effort is much easier said than done. After all, the incoming Trump administration is not the first to come up with such an idea.
While I'm not saying D.O.G.E. is destined to be a failure, I am positing the notion that reducing the federal deficit will take much longer than most people are probably anticipating. As such, I wouldn't be surprised to see some of the euphoria surrounding Musk's ambition begin to fade -- and with it, the price of Dogecoin.
In my eyes, Dogecoin is an abnormally risky investment opportunity wrapped inside the already speculative nature of cryptocurrency. I would pass on investing in Dogecoin and allow the internet-driven hype to play out. This time next year, I wouldn't be surprised if the price of Dogecoin has retreated considerably.
