1 Reason to Buy Dogecoin (DOGE)

Key Points

• Dogecoin has a fixed issuance of 5 billion new coins per year.

• Its inflationary system may prevent hoarding and encourage the use of Dogecoin as a payment method.

• 10 stocks we like better than Dogecoin ›

Thanks to the recent bull market, Dogecoin (CRYPTO: DOGE) is up 49% over the last month. And even though most meme coins don't have much staying power, Dogecoin is one of the 10 largest cryptocurrencies, more than a decade after its launch.

The reason meme coins usually don't last is that they have no real value or use case. As surprising as it may sound, Dogecoin has a unique feature that could make it useful.

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Image source: Getty Images.

Dogecoin's potential as a digital currency

Dogecoin has a fixed amount of inflation. Every year, 5 billion coins are released as block rewards for Dogecoin miners. There's no maximum supply, but the inflation rate gradually decreases because the number of coins created per year stays the same while the existing supply grows larger.

For example, the current circulating supply for Dogecoin is about 150 billion coins. The inflation rate this year will be a little over 3%. In 10 years, the supply will be up to 200 billion, and the inflation rate will be 2.5%.

The diminished inflation rate means that for the next several decades, Dogecoin will have a fairly normal, healthy amount of inflation. New coins won't flood the market and lower the value. But since the supply is still increasing, there's less motivation to hoard Dogecoin, like there is with some big cryptocurrencies, Bitcoin (CRYPTO: BTC) being the most famous example. With a fixed maximum supply of 21 million, Bitcoin is a cryptocurrency that people hold because they expect the value to increase.

Dogecoin's website argues that this gives it a more "utilitarian and practical place in the economy than other cryptocurrencies." It's well-suited to work as a legitimate currency, and not just a store of value. Some big names in the crypto community seem to agree, as Elon Musk and Mark Cuban have both expressed support for Dogecoin as a payment method.

A risky bet

While Dogecoin could theoretically work as a digital currency, there are downsides. It's volatile, and it's only accepted at about 2,000 merchants right now. If you decide to buy Dogecoin, only invest what you'd be comfortable losing to avoid taking on too much risk.

Should you invest $1,000 in Dogecoin right now?

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Lyle Daly has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.