Should You Invest $500 in Dogecoin Right Now?

Five hundred dollars isn't a king's ransom. But if invested in the right asset at the right time, it could help set the foundation for life-changing returns over the long term. For example, if you put $500 in Dogecoin (CRYPTO: DOGE) just five years ago, you would have just under $36,000 today -- an almost incomprehensible return of over 7,000% in half a decade.

You generally can't get these types of gains in any other asset class. And that's why interest in cryptocurrency investing continues to grow, especially with the younger generations. That said, for Dogecoin, the easy money seems to have already been made, leaving new investors wondering if they should put their money elsewhere. Let's dig deeper into Dogecoin's fundamentals to decide if it is still a winner.

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The macroeconomic picture looks solid

When it comes to cryptocurrency, investors should consider the overall macroeconomic landscape just as much as asset-specific factors. The good news is that the trends look encouraging. Under the Donald Trump administration, the U.S. government has taken a softer stance on the industry through fewer lawsuits and favorable legislation, such as the Genius Act, which establishes a regulatory framework for the asset class.

On the flip side, many of Trump's policies are also shaking faith in the U.S. dollar, with the dollar index down 8.7% year to date. The country's rising debt levels and uncertainty about central bank independence will also encourage more investors to diversify into cryptocurrency. But while a rising tide tends to lift all boats, asset-specific factors will also play a significant role in Dogecoin's performance relative to alternatives.

Hype and volatility

Over the long term (think five or 10 years), Dogecoin has actually outperformed mainstream alternatives like Bitcoin and XRP because of its extremely low starting point and volatility. However, this can be a double-edged sword because many of its rallies are driven by hype and speculation (such as Elon Musk tweets) instead of institutional adoption. The volatility means that if you buy Dogecoin at the wrong time, it could be years or even decades before you get back in the black.

Furthermore, the asset's design makes it inherently unattractive for long-term holding. Unlike Bitcoin, which has built-in scarcity with its maximum supply of 21 million units, Dogecoin's supply is infinite. There are already 151.5 billion units in circulation, and that number is programmed to expand by 5 billion per year forever. Even though long-term demand growth can counteract supply growth, the lack of scarcity could create a negative feedback loop by changing investor psychology around the asset.

Dogecoin is also relatively weak from a technical perspective. With a transaction capacity of just 30 per second, it is much slower than newer blockchains like Solana, which can theoretically handle 65,000 per second. Although this might not have much practical implications (few people actually use cryptocurrency for commerce), it could eventually present a bottleneck to growth and adoption.

Should you put $500 in Dogecoin?

In general, investing in cryptocurrency is a good idea because of the positive macroeconomic trends for the industry. With $38 trillion in debt and ever-increasing spending, more investors and large institutions are likely to use this asset class to diversify their portfolios and reduce exposure to the dollar. And unlike gold or other fiat currencies, Dogecoin presents the opportunity for market-crushing returns.

However, when it comes to holding for the long term, investors may sleep more easily with other cryptocurrency alternatives because of Dogecoin's infinite token supply and roller coaster-like volatility.

Will Ebiefung has positions in Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.