Down 30% This Year, Is Dogecoin a Good Buy Right Now?

Key Points

• Retail investors appear to have limited appetite for high-risk meme coins right now.

• Interest rate cuts could potentially lead to increased risk-taking in the markets.

• Concerns around the economy weighed down Dogecoin this year, and that could continue to be a factor in its future.

• 10 stocks we like better than Dogecoin ›

It hasn't been a bad year for crypto as a whole. Bitcoin has hit record highs, and President Donald Trump has been putting into place crypto-friendly legislation, including the creation of a regulatory framework for stablecoins.

But Dogecoin (CRYPTO: DOGE), which initially rallied after his election win last November, has been in a tailspin this year. Since January, it has declined by more than 30%, while Bitcoin is up around 18% and the S&P 500 has risen by about 9%.

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The meme coin has been falling out of favor with crypto investors of late, but it's still the eighth largest coin, with a market cap of $32 billion as of Sept. 2. Is now a good time to load up on one of the most popular meme coins in the market?

Image source: Getty Images.

Could lower interest rates be key to Dogecoin recovering?

Dogecoin is a speculative meme coin, and how it performs is going to hinge on the appetite retail investors have for risk. Right now, that hunger doesn't appear to be significant.

Bitcoin is the safest and most popular cryptocurrency, and it has been rising in value this year. But riskier options, including Dogecoin and rival Shiba Inu, which is down more than 40%, have been going in the reverse direction.

The key to turning fortunes around for meme coins could depend on what happens with interest rates. If they come down, that decreases borrowing costs for companies and is a sign that inflation is perhaps at more acceptable levels -- and that may result in a greater acceptance of risk in the markets.

The good news for crypto investors is that according to the CME FedWatch tool, there is near 92% probability that rates will be cut this month. And there's nearly a 50% probability that there will be another cut in October.

If multiple rate cuts happen, that could be the catalyst necessary to give Dogecoin and other meme coins a boost this year. However, that doesn't mean that it will be smooth sailing for Dogecoin.

A worsening economy could weigh on the cryptocurrency

Interest rate cuts could be a good thing for Dogecoin, but in the bigger picture, tariffs and the overall strength of the economy may be more important factors to consider. The meme coin hit its lows for the year back in April, around the time reciprocal tariffs were announced.

Dogecoin Price data by YCharts.

How the economy does and how bullish investors are about the market as a whole may be more of a factor in how Dogecoin performs than whether the Fed cuts rates at its next meeting. If there are fears of a recession coming or an economic slowdown, that may result in investors being more careful with their money. And Bitcoin and stablecoins may offer more safety for crypto buyers and be more attractive than meme coins like Dogecoin.

Dogecoin isn't worth the risk

Investing in cryptocurrency is risky and speculative as it is, but buying meme coins takes it to another level entirely. More crypto-friendly policies could reveal safer investment opportunities for crypto investors outside of meme coins. And by having a wider pool of investments to choose from, buying Dogecoin may not be all that appealing anymore.

With limited practical uses for the digital token and a high degree of risk involved with owning it, there isn't an overwhelming reason to buy it today, even though it is trading at a reduced value. And even with its recent decline, it has still more than doubled in value over the past 12 months.

Dogecoin is by no means a bargain, and it's full of risk. For the vast majority of investors, the best option is to simply steer clear of it.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.