Dogecoin (DOGE -0.08%) is making a monster comeback. On Oct. 31, the speculative crypto traded 75% below its all-time high of May 2021. But since the start of November, it has skyrocketed roughly 150% as investor excitement soars.
As of the afternoon of Dec. 17, this meme token trades at $0.40. But can it climb another 150% to one day reach a new record of $1? Continue reading to understand Dogecoin's potential price trajectory.
Increasing speculative behavior
The stock market has benefited greatly from investor optimism following the presidential election, and so has the broader cryptocurrency market. Even Dogecoin, one of the most speculative tokens out there, has marched higher.
This trend provides a clear example of the most obvious bullish case for Dogecoin, which is known as the greater fool theory. The idea is that you should buy something not because it has value in itself, but because you will be able to sell at a higher price later to someone less informed. This risky strategy depends on unrelenting hype for whatever you're buying.
It certainly helps that Tesla founder and Chief Executive Offic er Elon Musk, who attracts a lot of attention and currently has Donald Trump's ear, has voiced support for Dogecoin. Couple this with the fact that there's a plan to create a new government agency called the Department of Government Efficiency (DOGE) -- which has no real relationship with the cryptocurrency -- and he could continue to encourage speculation on Dogecoin.
Lacking competitive strengths
It's not difficult to have a bearish view of Dogecoin. That's because the digital asset doesn't have any competitive strengths.
Dogecoin was launched in 2013 to be a lighthearted alternative to Bitcoin. It uses a proof-of-work consensus protocol. DOGE tokens can be used to send and receive money. But 10,000 new Dogecoin tokens are created every minute with no maximum supply. This demonstrates how abundant its token count is.
On the other hand, Bitcoin has a fixed supply cap of 21 million coins. Moreover, as the world's oldest and most valuable crypto, and with a $2.1 trillion market cap, Bitcoin has the advantages of huge scale, network effects, and a broad and expanding financial ecosystem that puts it head and shoulders above Dogecoin.
The number of developers working on a project can be an indicator of its potential. It's a good sign if there are smart computer scientists working on a technology to boost utility and adoption. But according to venture firm Electric Capital, Dogecoin isn't one of the top 100 blockchain networks by developer activity. That's not an encouraging sign.
Dogecoin is a gamble
I'm not a buyer of Dogecoin because I believe the bear case, which is mainly that it doesn't have any notable competitive strengths. And this case could become more popular, leading to the market viewing it as a worthless token.
But I can certainly understand how much speculation among the investment community matters. And this could keep supporting Dogecoin's price for the foreseeable future.
Therefore, I honestly wouldn't be surprised if Dogecoin continues having random spurts, like the one it's experiencing now, that eventually get it to the $1 mark. But such spurts will be unpredictable, as they're not based on anything fundamental.
And if the coin does get to $1, it will probably see a huge decline not long after. Buying this crypto is nothing more than a gamble, so I think the best thing long-term investors can do is avoid it.
