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Should You Invest in Dogecoin in 2022?

The Motley Fool
The Motley Fool
 2022-01-21

Thanks to the meme-stock mania that took over the market last year, Dogecoin (CRYPTO: DOGE) was a star. The popular token, created as a fun competitor to Bitcoin (CRYPTO: BTC) , skyrocketed almost 12,000% from the start of 2021 to its all-time high on May 8. Since then, however, Dogecoin has lost more than 70% of its value.

You might be viewing this as a lucrative opportunity to scoop up some cheap DOGE, the name of this dog-inspired cryptocurrency 's native token. Does Dogecoin, now the 11th most-valuable cryptocurrency with a market cap of $21 billion, make a good investment this year? Let's find out.

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Image source: Getty Images.

Dogecoin has limited acceptance

Like Bitcoin, Dogecoin is a blockchain built solely as a payments network. It uses a proof-of-work consensus mechanism , which requires miners to solve complex math problems with expensive, high-powered computers to earn the right to validate transactions. Dogecoin's advantage versus Bitcoin is that it's cheaper and faster to process transactions.

But Dogecoin has virtually no utility. According to the website Cryptwerk, there are just 1,900 businesses that accept it as payment. Data from Statista tells us that there are more than 213 million companies worldwide. This alone demonstrates the lack of legitimacy that Dogecoin carries as a payment method.

Perhaps the most prominent organization that accepts Dogecoin is the National Basketball Association's Dallas Mavericks. Fans can buy tickets and merchandise with the token. This shouldn't come as a surprise because the Mavericks' team owner, billionaire Mark Cuban, is a huge fan of Dogecoin and crypto in general. AMC Entertainment Holdings , the poster child of the meme-stock craze, is set to accept Dogecoin sometime in March. And Tesla Chief Executive Officer Elon Musk recently tweeted that consumers could buy certain merchandise from the electric-vehicle company with Dogecoin. These moves appear to be nothing more than publicity stunts.

Because the number of coins is uncapped (there are more than 130 billion DOGE tokens in circulation, with 10,000 more being created every minute), it would require enormous demand to outpace a rapidly growing supply for the coin's price to rise over time. But aside for being accepted as a payment method purely for fun, there aren't many uses for Dogecoin. This inevitably limits its upside.

There also aren't many developers working on advancing the meme crypto, further adding to the bear case. Even its founders, Billy Markus and Jackson Palmer, who started Dogecoin as a joke, stopped working on its development in 2015.

Can't bank on the hype cycle

As a rule of thumb, investors should take a long-term approach, with a time horizon of five years or longer. That being said, I don't think anyone can seriously consider buying Dogecoin with the intention of owning it for that length of time. Adding Dogecoin to your portfolio would be based entirely on speculation. The hope is that it attracts attention on social media and the price quickly appreciates. This is more like gambling than true investing.

With any cryptocurrency, the potential for real-world use cases is what matters. And as I discussed above, Dogecoin is seriously lacking in this respect. Therefore, I believe investors should avoid it in 2022.

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Neil Patel owns Bitcoin. The Motley Fool owns and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy .

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