Key Points

• Dogecoin was created as a joke but at its peak the cryptocurrency was more valuable than most of the companies in the S&P 500.

• Dogecoin has since fallen almost 90% from its high as it struggles to find a sustainable source of demand.

• Dogecoin’s supply is poised to grow forever, which will weigh on the price.

• 10 stocks we like better than Dogecoin ›

Bitcoin officially launched in 2009, and it quickly attracted a dedicated group of followers. Many of its supporters believed it could transform the entire financial system, but two friends, Billy Markus and Jackson Palmer, thought the cryptocurrency industry was suddenly taking itself too seriously.

Using the famous “Doge” internet meme as inspiration, Markus and Palmer launched a meme coin called Dogecoin (CRYPTO: DOGE) in 2013. They openly admitted the entire exercise was a joke, but that didn’t stop speculative investors from driving its price to a peak of $0.73 per coin in 2021. It had a market capitalization of more $90 billion at the time, making it more valuable than most S&P 500 (SNPINDEX: ^GSPC) companies.

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Unfortunately, speculative frenzies never last, and Dogecoin has since fallen 88% from its peak. In fact, it was trading at just $0.068 per coin last month, the lowest level in three years. But can it rediscover its lost momentum and stage a rally to $1 before 2027 rolls around? Read on for the shocking answer.

Image source: Getty Images.

Dogecoin is still searching for a use case

Speculation is never a sustainable driver of upside for any asset because investors will buy only while it’s trending higher. Speculators head for the exits en masse when the asset starts falling in value, which is why most buying frenzies end with such violent losses.

Broadly speaking, real estate prices tend to rise over time because people need homes, and stocks rise in value because the revenue and earnings of the underlying companies grow. These assets have fundamental value, which attracts long-term investors.

Even some cryptocurrencies have sustainable sources of demand. XRP, for example, is used to send money around the world instantly through the Ripple Payments network. Then there are Ethereum and Solana, which are used to pay the gas (user) fees that keep decentralized software applications running. Bitcoin has a consistent source of demand from investors who see it as a legitimate store of value.

Dogecoin wasn’t designed with any real purpose in mind, so there was no true source of demand to sustain its price after the speculative rally of 2021 ran out of steam. Although it can be used to make payments, only 2,328 businesses worldwide are willing to accept it, according to crypto directory Cryptwerk. Moreover, it isn’t tied to any decentralized app platforms, nor is it a good store of value, given that it hasn’t made a new high in five years.

For those reasons, Dogecoin’s chances of ever hitting $1 look bleak.

Dogecoin’s infinite supply poses another challenge

Dogecoin uses an issuance method similar to Bitcoin’s called mining, which involves people using computers to solve complex mathematical problems to earn the right to validate transactions on the blockchain. They receive Dogecoins as a reward for their efforts, which incentivizes them to keep participating in this process. Without validators, the blockchain wouldn’t be a secure or accurate system of record, and the entire ecosystem would fall apart.

Bitcoin has a capped supply of 21 million coins, which can never be changed. However, Dogecoin’s supply technically has no limit; although only 5 billion coins can be mined each year, there is no end date, so the circulating supply will increase indefinitely.

Assets with an unlimited supply typically don’t appreciate over the long term. If gold were as abundant as coal, it certainly wouldn’t sell for more than $4,300 per ounce. Even the U.S. dollar loses value when supply increases.

Can Dogecoin reach $1 by 2027?

Dogecoin has a circulating supply of about 155.9 billion coins, as of this writing. If 5 billion more are added to the tally during the next 12 months, the existing supply would be diluted by about 3%. In theory, the price per coin would have to decline by an equivalent amount for Dogecoin’s market cap to remain at its current level ($13 billion), which is appropriate given that the ecosystem isn’t creating any real value.

That means the price per coin would have to fall from $0.085 to $0.082 during the next year to account for dilution, so gains of any magnitude seem unlikely by 2027, let alone a powerful rally to $1.

Longer term, Dogecoin’s circulating supply could double to 311 billion tokens during the next 31 years, meaning the price per coin could sink by 50% or more during the same period. Finding a sustainable source of demand is the only way Dogecoin can avoid this outcome, and since it hasn’t found one in the 13 years since it launched, I just don’t see it ever happening.

Should you buy stock in Dogecoin right now?

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.