Dogecoin Just Plunged Below a Very Important Level, and It Spells Bad News for Investors

Dogecoin (CRYPTO: DOGE) is the cryptocurrency industry's original meme token, and it has taken investors on an extremely volatile journey since its creation in 2013. It peaked at $0.73 per token in 2021, when its market capitalization of more than $90 billion made it more valuable than most companies in the S&P 500.

But it has mostly trended lower since then. In fact, Dogecoin plummeted to just $0.073 last week, a level not seen since 2023. It means the meme token has officially given up all its gains since 2024, the year Donald Trump won the U.S. presidential election for the second time.

This is really important, because it suggests the Trump administration's pro-crypto policy agenda has effectively created zero value for Dogecoin. It's unclear where the next positive catalyst will come from, so here's why investors might be facing even further losses.

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Dogecoin continues to fail the adoption test

Dogecoin was created by two friends who felt the cryptocurrency industry was taking itself too seriously. They used the famous "doge" meme as inspiration for this new token, and in their own words, the entire exercise was a joke. They never had a real use case in mind, which is why the value of Dogecoin typically swings based on the whims of speculative investors.

A stable source of demand is the key to creating value for any cryptocurrency. Ether, for example, is the native token of the Ethereum platform, which developers use to build decentralized software applications. Every time people use one of these apps, they activate smart contracts that trigger fees payable in ether, which creates a constant source of demand.

Not only does the Dogecoin ecosystem lack that kind of innovation; it isn't even gaining traction for basic use cases, such as payments. According to crypto directory Cryptwerk, just 2,273 businesses around the world are willing to accept the meme token in exchange for goods and services. If consumers can't spend Dogecoin at their favorite stores, then they have no reason to buy or hold it.

Moreover, investors who expected the U.S. government to step in as a buyer of certain cryptocurrencies under the Trump administration have been disappointed. While the president spearheaded the establishment of a digital asset stockpile last year, it will hold only coins and tokens that have been seized because of criminal activity. It won't be directly buying more, so there's little to no impact on prices.,

Dogecoin's infinite supply makes a sustainable recovery almost impossible

Even if Dogecoin found a legitimate use case to drive sustainable demand, creating value would still be an uphill battle in the long run because of its major supply issue. New tokens are constantly issued to "miners" as a reward for validating transactions on the blockchain, a necessary process for keeping the ecosystem functioning. Without it, the blockchain wouldn't be a reliable or secure system of record.

Bitcoin (CRYPTO: BTC) uses a similar validation mechanism, but with a key difference. It has a capped supply of 21 million coins that can never be increased, creating the perception of scarcity. Dogecoin, however, technically doesn't have a supply limit. Although only 5 billion tokens can be mined each year, there is no end date, so its circulating supply will grow forever.

In practical terms, that means each token investors hold today will gradually lose value with time. There are 154.8 billion tokens in circulation as I write this, so if 5 billion are mined each year, that equates to roughly 3% in annual dilution. This can be a huge drag over the long term, because it means supply will double during the next 31 years or so, which suggests the price of a single Dogecoin can be expected to halve over the same period.

Therefore, Dogecoin's recent price of $0.074 could easily fall to $0.037 over the next three decades, even if investor sentiment doesn't worsen further. However, there is a risk it suffers an even sharper decline as investors lose patience with the meme token's lack of upward momentum, and steadily trim their positions.

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