Could Buying Dogecoin Set You Up for Life?

Cryptocurrencies have enjoyed a strong run during the past several years.

Dogecoin (CRYPTO: DOGE), the original meme coin, has appreciated by more than 200% during the past three years and a staggering 7,100% in the past five years. Meme coin or not, those are serious returns that could be life-changing for some investors.

Research from The Motley Fool indicates an increase in cryptocurrency interest among investors in recent years, particularly among younger generations. In other words, cryptocurrencies appear to be here to stay. Can buying Dogecoin today still set investors up for a lifetime of returns with its long-term potential?

Image source: Getty Images.

Dogecoin has faded after a post-election pop

Meme coins lack much practical use -- even Dogecoin's developers initially created it as a joke. As a result, it's the market segment that drives meme coin prices. Investors have favored growth stocks, cryptocurrencies, and other riskier assets since early 2023, primarily due to the artificial intelligence (AI) boom that began with the viral success of ChatGPT.

Then, Donald Trump's victory in the U.S. presidential election late last year turbocharged cryptocurrency enthusiasm. Trump campaigned in support of the cryptocurrency industry, and has followed through. Since he took office, several events have boosted cryptocurrency's standing in the financial system, including:

• An executive order creating a strategic government stockpile of digital assets.
• The dismissal or resolution of lawsuits against multiple cryptocurrency companies.
• The Genius Act, passed and signed into law, which establishes a regulatory framework for digital currencies in the United States.

Yet, Dogecoin hasn't done well since the election:

Dogecoin Price data by YCharts

The primary problem might be that optimism peaked as all these exciting events unfolded in rapid succession. Since then, several factors have begun to weigh on investors, including tariffs, continued inflation, and the resumption of student loan payments. It all adds up, and some of these challenges most impact younger investors, who tend to be those most interested in cryptocurrencies.

Dogecoin may struggle to recover to its former highs without some catalyst to ignite optimism again, and there doesn't seem to be much on the horizon. Remember, even though Dogecoin runs on its own blockchain, the token has very little real-world utility.

Tokenomics work against Dogecoin's long-term price

Going further, Dogecoin has poor tokenomics that work against the idea of holding the meme coin as a long-term investment.

Some investors buy Bitcoin as a hedge against inflation. Its limited supply and slowing supply growth following each Bitcoin halving have helped its price appreciate.

But Dogecoin isn't structured the same. About 10,000 Dogecoin tokens are mined every minute, with no cap on the total number of tokens in circulation. It actually more closely resembles fiat currencies, such as the dollar, which has lost value over the years as its supply expands.

US Consumer Price Index: Purchasing Power Of the Consumer Dollar data by YCharts

Dogecoin's price peaked at about $0.73 in May 2021, with a fully diluted market value of $85 billion. Today, Dogecoin's price, about $0.20, is almost 75% off its all-time high, but the market value is down just 67%. As the supply grows in the future, it will continue to dilute the price gains of each token unless investors place more value in Dogecoin as a whole.

Can buying Dogecoin set you up for life?

Dogecoin ultimately lands between a rock and a hard place for most investors.

On the one hand, Dogecoin is far too volatile and risky to justify allocating a meaningful portion of your portfolio to it. On the other hand, you would need staggering price gains for Dogecoin to generate life-changing returns.

That's not to say that Dogecoin won't go on another run the next time euphoria hits the cryptocurrency market. The challenge is that the tokenomics work against you, and just as the 2024 run fell short of the 2021 run, each subsequent cryptocurrency boom may also fall short as the supply increases.

Life-changing returns don't seem likely, to say the least. It's best to consider Dogecoin a light-hearted way to try to make some fun and lucky money in a speculative market -- not part of a serious investment strategy or portfolio.

Justin Pope 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.